reading up is always good and the best source of info, but a quick summary is as follows
local variables: within a single event structure, I often use them for intermediate calculations, etc. they can only be changed within that event and using them means that you don't affect things outside of your event. so it keeps things constrained
global variables: very useful for information that passes between events (on the same sheet as well as between sheets and layouts). they are also useful for long-term storage of information... eg scores, progress. global variables could be used for all cases of local variables but in my humble opinion it is bad practice as you should keep the number of globals to a minimum and use them only when you need them
instance variables: these are variables that are connected to an object and are very useful for picking out a specific object from a group, or for having one object do multiple things depending on the value of an instance variable.. or could be used as the health indicator for a baddie (that was in one of the tutorials). so instance variables do not replace globals or locals, they are different things.
for those not comfortable with instance variables, you could hack your way through global variables but then you are really missing a powerful tool.