When we configure service instance on any port, that port becomes a pseudo port. The service instance defined under any port has some rules to match the incoming frames from CPE. Those rules defined the Ethernet flow points. Without the rules, service instance in itself doesn’t do anything.

Encapsulation
Encapsulation dot1q defines the matching criteria of incoming and outgoing frames. We can match single vlan, double tagged vlans, class of service (CoS), ether types and layer 2 protocols under any EFP(Service Instance).

Bridge Domain
A bridge domain is single broadcast domain which could be used to mapped two different service instances into a single one. Bridge domain is identified by the service instance number. It has nothing to do with the vlan. So the service instances in same brige domain can communicate with each other.