What is the difference between a database and Instance? What is the relation between them?

A database is the collection of three basic physical structure and these structures are data files, redo log files and control files which are stored in a disk whereas instance comprises an Oracle background process such as System MOnitor (SMON), Process MOnitor (PMON), Database writer (DBWR), Log WRiter (LGWR) and memory structure such as System Global Area (SGA), Program Global Area (PGA). These Oracle background Processes share a common memory area while running on a computer.

Another important difference between the database and an instance is that an instance is able to install and open only a single database whereas a database can be installed or opened by more than instance with the help of Real Application Cluster (RAC).