Rules are the principles that guide play, that the programmers enforce in code. Instructions are for the players, telling them what to do in order to run the game and get started playing it.

Music and sfx are neither rules nor instructions. I call them part of "atmosphere."

Moving this to Game Design. It's not an art question.

It didn't sound like he was defining gray area to me.. 

I see it pretty much the same.

Rules, define what the game is.  Instructions are guidelines/steps to follow to learn or progress in some direction.

I'm having trouble understanding what you mean by "space of a game"..

Atmosphere defines the look or feel or sound of something, in my mind..  Not sure it has another category to fit into.

I'd say rules in a game are restrictions that players should be bound to. Instructions tell players what to do. They may sound similar, but let's put them both in example format.

Rule: "Player must not fight enemies from point A to point B, and if player does, it's game over."

Instructions: "We should sneak past all those guys from here on until we get back to town. We're dead meat if we tangle with them."

It's simply a matter of expression. I'd like to see an NPC say, "Player must not fight enemies from point A to point B, and if player does, it's game over."

As far as what element sound goes in, I'd say it depends on how it's used. You can have an audio-central game where you need to listen to certain audio clips to follow a set path to achieve progress, so sound would be instructions, or sound can be background noise to assert mood for plot themes. You could also have good or bad sound effects play when obtaining an item to indicate a good quality item or a bad quality item, so sound is verbal communication to the player. Basically, all I'm saying is sound is a flexible form of expression.

Instructions are informal, rules are the definition of the game. Examples:

• Rule: if any of some especially flagged units in a RTS level dies, the player loses. Instructions: a mission briefing explaining the evacuation will only be considered successful if all civilians reach the helicopters.
• Rule: poker players take turns in a fixed order and deal cards beginning with the following player in turn order. Instructions: they take turns clockwise around the table by convention, and the first player should be determined in a friendly way (e.g. by drawing lots)
• Rule: a table of wargame combat results depending on unit type, unit size and dice rolls. Instructions: noticing/reminding that having more than 4 times as many infantry or 3 times as many tanks as the opponent isn't useful (so they should be employed elsewhere).

Locking thread because it was necroed after lying dormant for 2 months.