From Oracle FAQ
An Oracle Instance is a running Oracle Database made up of memory structures (SGA) and background processes (SMON, PMON, LGWR, DBWR, etc.). An instance only exists while it is up and running.
Simply put, a database resides on disk, while an instance resides in memory.
A database is normally managed by an instance. However, when using RAC, multiple instances can be started for a single database (on different nodes of a cluster). Each instance is identified with a unique identifier known as the ORACLE_SID.
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