Quoted from BOL about the definition of instance.

"There are two types of instances of SQL Server:

Default Instances

The default instance of the SQL Server 2000 database engine operates the same way as the database engines in earlier versions of SQL Server. The default instance is identified solely by the name of the computer on which the instance is running, it does not have a separate instance name. When applications specify only the computer name in their requests to connect to SQL Server, the SQL Server client components attempt to connect to the default instance of the database engine on that computer. This preserves compatibility with existing SQL Server applications.

There can only be one default instance on any computer, the default instance can be any version of SQL Server.

Named Instances

All instances of the database engine other than the default instance are identified by an instance name specified during installation of the instance. Applications must provide both the computer name and the instance name of any named instance to which they are attempting to connect. The computer name and instance name are specified in the format computer_name\instance_name.

There can be multiple named instances running on a computer, but only the SQL Server 2000 database engine can operate as a named instance. The database engines from earlier versions of SQL Server cannot operate as a named instance."