> If someone deletes an instance, is your content gone?

No. As long as another instance knew about your posts, that data is preserved on that instance. I believe you can file a deletion for those posts, but don't quote me on that. A recent example is the deletion of Drew DeVault's instance cmpwn.org. His web presence is gone, but I can still see his posts from my instance (fosstodon.org).

> This part confused me a bit. Can anyone ELI5?

Imagine having a twitter account and following your friend on instagram. Their posts will show up on your twitter-timeline, and you can like, comment and share them on twitter.