1. Meaning: Instead of = as an alernative, Rather than = as a preference.
2. Most of the SCs can be solved with this "meaning" difference. But in some cases, it might be difficult. In those cases,
X rather than Y = Y can be a phrase (acts as a preposition) or a clause (acts as a conjunction)
X instead of Y = Y has to be a phrase (acts as a preposition)
Eg:
Correct: I decided to eat burger rather than the usual sandwich.
Correct: I decided to eat burger instead of the usual sandwich.
Correct: I decided to skip lunch rather than eat in the cafeteria again.
Incorrect: I decided to skip lunch instead of eat in the cafeteria again.
3. Please take a look at the Verbal lessons section, where there is a long post by Praetorian on this.