From what bassman posted and other posts. (my extrapolations, could be wrong, please correct)
Each instance is made up of each of the players communicating with each of the other players directly. (i think this is pretty safe bet, several posts by devs have pointed to this)
Control of NPC things is shared between players, with some load balancing so the most capable machine takes the most load, so you might have a situation where the worst PC & connection does little more than handle the player with all the AI happening on other machines.
FD servers handle the 'matchmaking' and some functions like docking (station AI) as well as arbitrating and record keeping.
So if the above is true, having a good set up will mean that the experience improves for every one in your instance, but only whilst you are there, and the experience will be dictated by the lowest performing member.
It does leave the possibility that FD could 'host' stations and events by acting as one 'super pc' that handles all the AI etc for an instance, allowing the player machines to only handle the minimum work.
TBH i'd be happy with smaller, better performing, instances for 'day to day' stuff, and FD hosted instances for 'events' and possibly popular stations.