SQL Server (service) can be installed multiple times on the same computer. Each installation is called an 'Instance'. When you install SQL Server each time, a new windows service is installed.
Each instance of the SQL Server can have it's own databases, security, users etc. Each instance one can be stopped and started without affecting other instances.
SQL Server 2005 allows to install up to 50 instances on the same computer.
Instances are classified to two categories:
1. Default instance (no name)
2. Named instance
You can have only one default instance and all other instances should have a unique name. You have the option of selecting default instance or named instance while installing SQL Server.
In most cases, you will need to install only one instance (default instance). Multiple instances are useful if you have multiple departments or multiple clients sharing the same computer and do need to manage their SQL Server instance without affecting other departments/clients.
You can access the default instance of SQL Server using one of the following names. Assume the IP Address of the computer is 192.168.2.100 and computer name is DevServer1.
Any of the above names can be used if the SQL Server is installed on the same computer. if it is remote computer, then you can access it using only the IP Address or computer name (last 2 options). The IP Address 127.0.0.1 is a spacial IP Address to represent the local computer. Even though this is not a real IP Address, you can represent the local computer using this Ip Address.
The named instances can be accessed by appending the name of the instance to one of the above with a backslash, as shown below: