It probably would have been better if AWS had called them "reservations" rather than "reserved instances".

NB they would never call it a lease or rental because those terms have legal repercussions in some jurisdictions.

A reserved instance is simply pre-paying for a specific amount of EC2. AWS is able to discount this because: 1. You're pre-paying 2. You might not use all the resources you're entitled to, if you don't keep a running EC2 instance "filling" the reserved instance slot. 3. You're helping them with capacity planning and capacity management; there's no guesswork involved with your workload.