What is a SQL Server instance?
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On a given server you can run multiple SQL Server services, each with their own ports, logins, and databases. Each of these services is called an "instance" of SQL Server. You can further categorize these as the "primary instance" and "named instances." The primary instance can be accessed using just the server name or IP address. The named instances, on the other hand, are accessed by appending a backslash and the instance name. For instance, to connect to the instance called "abc" on the local server, use: "127.0.0.1abc". In SQL Server 2005, you can have up to 50 instances running simultaneously on a server.
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