Doug,
Instabind was designed for the finished edges on stairways. It is not an extremely durable item to simply use as a binding on an area rug that will receive a lot of use, although it can be used as long as someone recognizes its limitations. Even rugs that have binding put on with a machine made for this, with heavy use can need repair over time.
If you are making a rug for someone, say a customer that has remnants from an installation and it is overall in good shape but a little ragged on the edges, it can be a nice gesture to square it up to fit and put a binding on it. One can also put a contrasting border on it fairly simply and then if they want to bind it and they do not have a machine or access to one, they could use instabind for the binding to give it a finished edge. Will it last long? It depends on use and on & on.
Instabind is not a replacement for a machine binding but it does give one another option, if the circumstances fit, remember it was made for the finishing of edges on stairs where it generally will receive little traffic on the instabind itself. The carpet installer that 'invented' it was bright to sell it to the rug making industry, other wise its use would be very limited. It still is in my opinion but that doesn't mean one cannot use it and expect 'reasonable' results if the rug is not heavily used.
A custom rug can have a lot of areas sewn and have adhesive to hold it together. Woven materials may not hold well with conventional 'hot melt glue' dispensed with the use of glue guns, ( although the right hit melt will hold pretty well). Typical tufted carpet that may be put together can also have sewing and adhesive used to put it together. There is a lot of difference in hot melt glues and what type may be used, as well as latex and synthetic latex that can be used. Some will try to put area rugs together with conventional seaming tape, ( I love these since they often need repair work). Can a rug be put together and hold up with glue guns? Absolutely, if one knows how to do it.
Making a rug can be from fairly simple to very complex and also works of art. If one has an interest in doing this, for fun, for making little gifts for family and friends or even as a part of a marketing program, it can be learned and it can be done with some fairly simple to some fairly complex tools. But if you want to do it, don't let any of us discourage you, learn it for yourself, practice using different tools and methods and see if you like it and if others like your work.
I heard an interesting story the other day about a bunch of tree frogs. They are climbers and several of them had to climb a very steep and dangerous wall of rocks and up the mountain. As they started to climb, all of the other animals told them they could not do it, it was too steep and too high and too hard to do. One by one they each fell before they got to the top except for one little tree frog who finally made it. Why had he not fallen? Why could he make it to the top, even though everyone said it could not be done? He was 'DEAF', he made it because he did not know he could not do it! The moral: One never knows what they can do unless they try.
I hope this answers some of your questions and I know it probably raises more but keep asking for help and also try things. One amazing thing learning about custom rugs, it gives one a lot of 'Outside the Box' thinking on how to do repairs (I will give credit to Tony for that phrase in this instance).
Here is an example of putting one together with hand sewing and adhesive; this will not come apart, it can be power stretched and it will hold. The edges are sealed with hot melt and they will not fray.
Sorry to make this such a long post but I thought some of this may help with your questions.
SA