In Java, an instance is a specific realization of any object in object-oriented programming. It is created from a class and is sometimes referred to as an object of that class. An instance variable in Java is a variable that is declared in a class but outside any method, constructor, or block. Each instantiated object of the class has a separate copy or instance of that variable. Instance variables can only be used via object reference, while class variables can be used through either class name or object reference. The life of an instance variable depends on the life of an object, i.e., when the object is created, an instance variable also gets created and the same happens when an object is destroyed.

In summary, an instance in Java is an object created from a class, and an instance variable is a variable declared in a class but outside any method, constructor, or block, with each instantiated object of the class having a separate copy or instance of that variable.