What exactly is an instance in AWS?

An instance is another name for an EC2 server. EC2 (Elastic Compute Cloud) is an easily resizable AWS service used to run applications such as websites and databases in the cloud. It has its own CPU, RAM, operating system, and networking capacity, think of it as a powerful computer, managed and secured by AWS. The terms instance, server, and virtual machine are used interchangeably for EC2. "Instance" originally referred to the operating system in the server, but over time it has come to describe the EC2 machine itself.