1) I think the most significant difference is that a Csound instrument covers a wider range of possibilities then "instrument" in the colloquial sense. Colloquially, an instrument is something that produces sound; for example, we would call a guitar an instrument, but probably not a guitar pedal, which we might consider an effect instead.
A Csound instrument covers both possibilities. For example, reverb is often put in its own instrument in Csound for other instruments to route their output to. Another possibility is having an instrument do event processing of some sort, like taking score instructions that it uses to trigger other instruments. In Csound, an instrument is a sort of logical container, maybe closer to a class in OO programming.
2) In Csound, music results from instructions passed to instruments. This could be from a Csound score, MIDI, use of the API, etc.
If you haven't read Richard Boulanger's "Introduction to Sound Design in Csound" it goes into more detailed information about these topics.