We call it a "Mastodon instance" because we implemented the entire Mastodon API (https://docs.joinmastodon.org/api/). This is in addition to also implementing the ActivityPub API which Mastodon also implements for federation.
Mastodon is the name of a piece of software as well as an API, a website, etc.
Naming this stuff is hard but calling it a Mastodon instance would be more confusing.
So is Twitter not a Twitter instance? Like if it looks, walks and toots like a Mastodon, is it not a Mastodon instance?
[1] https://www.wired.com/2013/09/the-second-coming-of-java/
Except "Mastodon instance" means an instance of Mastodon, which is open source. Whether or not it was intended to be deceptive (I'd think a group of smart people would know better), this personally left a bad taste in my mouth.
They federated this brand new code in 9 months, and bluesky still hasn't released anything regarding federation. Don't keep your hopes up, it would kill their business model to let anyone run part of the network. People-driven networks are just not compatible with commercially driven ones, name one successful example.