A func_instance is an entity in the Source engine that is used to save certain complex objects, and reuse them easily among several maps, used officially only in Portal 2, but they do work in other Source games (the only one I'm sure of actually works is TF2, which is lucky, because it's the one that has caused me the most trouble, especially with figuring out how gamemodes work.)

If you change the instance file, all of the instances that use it will change to match the instance, but you will of course have to re-compile the maps that use it for them to work, and if they are on the workshop, you will have to re-upload them.

Instances are useful for more efficiently making maps that use things that either take too long to make or are too annoying to make so much of (eg. large groups of logic used for gamemodes, custom variations or not)

First, before you start making your first custom instance, you should add a few new folders to store the instances and categorize them

the first folder you should make is a folder with the name "instances". this will store all of the sub-folders that will categorize the instance files.

some useful sub-categories are:
"decor" for decorational objects like crate clusters and maybe some custom lights
"gamemodes" for storing subfolders for every gamemode in TF2 to store gamemode-specific objects
"generalGameplay" for general gameplay objects like spawnroom objects and even maybe spawnrooms themselves, containing the separate spawnroom instances
"miscellaneous" or just "misc" for things that can't really be categorized

Now that you have the instance folders set up, you can now start making your own custom instances

Go into Hammer, then create a new map, put whatever you want in it, then save it in one of the folders you just created a few seconds/minutes ago.

You now know how to make basic instances!

...Hopefully.

Ok. If you finished the last part of this guide, you should have something you can use in an instance

Now, something that can be really useful is having a map specifically for you to test new or edited instances to make sure if they work before you actually try and use them only to find out they actually don't work.

Ok. If this is your first time using instances in the TF2 Hammer editor, you will probably want to change the instance path in the gameinfo.txt file. as long as you change only that, it should be fine.

First you need to find the gameinfo.txt file.

The file path for me is:

E:\Program Files\Steam\steamapps\common\team fortress 2\tf

The gameinfo.txt file should be somewhere in the tf folder.

This is just my filepath, it might be different for you. try looking in different drives for the Program Files folder.

Then you need to open the gameinfo.txt file in some kind of text editor, like Notepad.

You then need to find the path to your tf2 mapsrc folder, the folder that stores the maps you've made in Hammer, and replace the instances filepath in the gameinfo.txt file with it.

Once your done, it should look something like this:

E:\Program Files\Steam\steamapps\sourcesdk_content\tf\mapsrc.

Then instances should be easy to use, as you can just fin the instance vmf file you want, click on it, and it will fill in the vmf filename in the func_instance.

It should also hopefully be easier to make larger instances, as you can use instances in instances.

The func_instance_parms entity is an entity used in instances to add easily editable parameters that allows you to change certain things about it to make it different from the other instances of the same type.

How you use the func_instance_parms entity in your instances is, in the instance vmf file, replace certain properties of entities in the instance with variable names, for example, if you have a resupply locker instance that you want to have both teams in one single instance, replace the "Team" setting in the func_regenerate with something like "$team" instead of just putting in a team for the resupply. The "$" symbol is necessary, but you can name the variable whatever you want.

Then, if you add a func_instance_parms entity to the instance, you can then add parameters to the instance.

There are three boxes you need to fill in for each variable you add: Variable, Value, and Default.

The variable box is what you use to choose what variable in this instance you want to be able to change, with the same example of the resupply locker from earlier, you can put $team in this text box.

The value drop-down menu is used for specifying what variable type this will use, for example, "integer" is a number without decimal places, "float" is a floating point number with decimal places, and you can even allow you to change the instance files of func_instance entities inside of that instance!
Examples: 5, 2.56, resupply.vmf

The default box should be pretty easy to understand. It's the default value for that variable.
Examples: $time integer 60, $team integer 2

This section will list several things you shouldn't do with instances.

Have an instance use itself, or another map that uses it, as that would cause an infinite loop which would never stop, which would, if somehow not cause errors, will crash the hammer editor, and worse, potentially crash your entire computer.