An LV2 instrument is a LV2 Plugin that can convert MIDI events to audio. You can select an LV2 instrument by clicking the instrument slot's down arrow. The LV2 instrument plugins appear in the list's 'VST and LV2 Plugins' section (Windows) / 'AU, VST and LV2 Plugins' section (Mac).
MIDI 2.0 / MPE
LV2 instruments can receive MIDI 2.0 protocol messages as per https://github.com/atsushieno/lv2-midi2.
Plugins that don't support this receive per-note pitch bend, per-note brightness and poly aftertouch via MPE. Switching to MPE happens automatically when per-note pitch bend or per-note brightness are sent to the plugin. MPE won't be used if you've set the per-note pitchbend range to zero.