An AUi (Audio Unit Instrument) is a AU Plugin that can convert MIDI events to audio. You can select an AUi by clicking the instrument slot's down arrow. The AUi plugins appear in the list's 'VSTi and AUi Plugins' section.
AU Instruments look like AU Plugins. They have an additional Channel Selector. Some AUi plugins respond to all MIDI channels the same way, in this case the channel setting doesn't matter unless you're recording using the Keyboard Splitter or multiple keyboards. Other plugins, especially the ones providing many different sounds, do always require the correct channel to be specified.
AU Instruments respond to all the streams that are in the track's MIDI file. However, in most cases it will be easier to use multiple tracks (each using an instance of the AU Instrument) instead.