Understanding Vue.js Instance Creation

In Vue.js, which is a progressive JavaScript framework used for building intuitive user interfaces, creating a new instance is a fundamental aspect. The correct way to generate a new instance in Vue.js is:

var text = new Vue({ // options })

The Vue constructor is used to create a Vue instance. Each Vue instance goes through a series of initialization steps when it’s created - for example, it needs to set up data observation, compile the template, mount the instance to the DOM, and update the DOM when data changes. During these steps, functions called lifecycle hooks are also run, providing users the opportunity to add their own code at specific stages.

Let's consider a practical example. We're going to generate a Vue instance and bind it to an element in the HTML:

var app = new Vue({
  el: '#app',
  data: {
    message: 'Hello Vue!'
  }
})

In your HTML file, you'd have a div with the id of "app":

<div id="app">
  {{ message }}
</div>

In this example, the Vue instance is bound to the HTML element with the ID app. The data object in the Vue instance includes a property message, which can be used directly in the HTML and it will dynamically update if message in the Vue instance changes.

When generating Vue instances, always remember:

• An instance must be bound to an element in the DOM.
• It can have multiple properties - such as data, methods, computed properties etc. - that dictate its functionality.
• Each Vue instance is isolated. This means data, computed properties, and methods can’t be shared across multiple instances directly. This helps in encapsulating and organizing your code better.

In conclusion, understanding how a Vue.js instance is correctly created and works is fundamental for building applications in this popular JavaScript framework.