In Cubase VST, an “Instrument” is a combination of a certain MIDI Output and a certain MIDI Channel. Each Instrument can be given a name, allowing you to quickly direct MIDI and Drum Tracks to the desired MIDI devices in your studio, without having to remember the exact Output and Channel configurations. Furthermore, you can specify which patch names should be used, individually for each Instrument.
P Don’t confuse Instruments with “VST Instruments”, which are MIDI-controlled software synthesizers (or other sound sources) handled from within Cubase VST. See the chapter “VST Instruments”.