What is an Instance in Flash?

Definition: An instance refers to a copy of a Flash symbol, whether it's a movie clip, graphic, or button. When you work with symbols on a stage, the symbols that you're working with aren't the actual original Library symbol. They're copies that can be manipulated by scaling them, applying color and opacity effects, animating them, and affecting the with ActionScripts. These changes don't reflect on the main symbol, which is stored in the Library in its original form.

All changes to the main symbol, though (taking place on its own timeline within the symbol itself) reflect on all instances / copies of the symbol anywhere on the stage.

Think of it as something similar to Plato's Theory of Forms; the symbol stored in the library is the pure form, while the symbols on the stage are just copies made from the form template.