What is a instance

Database programs, with few exceptions, need to utilize both the computer's memory and permanent storage space such as the hard drive to operate. The drives provide both long-term storage and the necessary room for millions of records and gigabytes worth of information.

However, accessing information from disks is much slower than retrieving the same information from memory. Therefore, database engines use memory to cache information, which speeds its retrieval.
The complexity of how the information is stored and where it is retrieved from is hidden from the casual user who queries the database. But if you plan on administering Oracle, you need to become familiar with how Oracle handles both resources.

An instance is the (executed) Oracle software (Oracle processes) and the memory they use (SGA). It is the instance that manipulates the data stored in the database.

It acts as a bridge between the database and the filesystem