Kacarp steps up to the podium..
Basically its a dungeon. But instead of letting everyone enter the same dungeon and fight over who gets the bosses etc a seperate "instanced" dungeon is created on the instance servers for your group. So me and Gear are in a party and go into the Deadmines ( the low lvl instance dungeon), we walk through the portal and it loads up and we have our own instance. Just me and you and whoever else we invite to our group.
Then if Darkfury switched to Wow and brought Ski with him and also went into the deadmines, they would ahve their own instance up. so that different groups can all enter a dungeon and not compete with each other. Read WoW's info here, they explain it pretty well:
http://www.worldofwarcraft.com/info/...nstancing.html
RAIDS
Basically its just an enlarged party. instead of 5 people you can have 40 people, each in small groups of 5. used for organizing large raids of the enemy cities, or fighting Raid Bosses.
http://www.worldofwarcraft.com/info/...aidgroups.html
Very easy interface for it with dragging and droppign to rearrange people.
Hope that helps.