The concept of VPN instance is first introduced by BGP/MPLS VPN to isolate VPN routes from public routes and isolate different routes between different VPNs.
In this manner, VPN instances can also be widely used in non-BGP/MPLS VPN network environments. By using VPN instances, you can create several independent virtual devices on the same device. In addition, routes in an IP network are isolated.
VPN Instance Used in Local Traffic Forwarding
Figure 1 shows a common networking diagram of local traffic forwarding. ISP1, ISP2, and ISP3 are connected to a Layer2 network that provides high speed forwarding capability. Network A, Network B, and Network C are connected to ISP1, Network D is connected to ISP2, and Network E is connected to ISP3. Each local network has a private link to access the Internet. The local networks access each other through the Layer2 network.
Figure 1 Networking diagram of local traffic forwarding

To improve the network security and reduce the requirements for ISP devices' capacity, the Layer2 network must be connected to Switch X that has a large capacity.
The External Border Gateway Protocol (EBGP) neighbor relationship must be set up between Switch X and ISP devices. The BGP neighbor relationship is not set up between different ISP devices. In this manner, Switch X can learn routes from all networks and advertise them to each ISP device to guide local traffic forwarding.
As shown in Figure 1, ISP1 provides three local networks with connections to the Layer 2 network. Generally, different interfaces on the same device must have IP addresses on different network segments. ISP1, however, can have only IP addresses on the same network segment. Then, the three local networks must access the Layer 2 network independently. Therefore, the overhead on ISP1 is increased.
VPN instance then is used to solve this problem. By creating different VPN instances, you can configure IP addresses on the same network segment for different interfaces on the same device. Therefore, the cost on ISP1 is reduced. A maximum of 4000 IP addresses can be configured in a VSI.