More in depth info from Chris Roberts on how singleplayer and multiplayer will coexist on the same server, as well as a detailed description of how the instancing will work in the game:
In short, there will be a pvp preference option that will allow players to customize how much pvp action they run into. However, pve battles will offer less rank and reputation rewards than pvp ones, so Roberts envisions this option working out as a set of "training wheels" for new players before they feel ready. Additionally, there will be systems where pvp will be prevalent regardless of your pvp preference. These systems will be fringe systems with high criminal activity and little security, but will offer the most lucrative trade opportunities.
As for the instancing, the main "galaxy server" keeps track of all player locations and is responsible for putting people into orbit, battle, or event instances. It will place you with other people based on skill level, alignment, pvp preference, and whether a player tagged another as a point of interest (like a pirate tagging a trader while on a planet and then following them when they take off). If you enter a battle instance, your friends can jump in to help you as long as they are in the same system. If they aren't, they can only join if they make it to your system before the battle is over. However, if you own a ship with multiple player slots, such as the constellation that has turrets and a short range fighter, your friends can join you on your ship from anywhere in galaxy to man those turrets and that fighter.