Your data will be used for ads. Ads are coming to Instagram. This isn't a surprise. However, the new terms outline the fact the ads will use your data, photos and even the metadata (read: geo-location data), for targeting purposes. As The Social Times says, "Get ready for some ads starring your friends and you." In fact, your data may be used as a way to endorse sponsored content or promotions.
Ads may not be marked clearly. You may not even know that ads are ads. This one seems curious since Facebook's sponsored content is typically clearly marked as such
Instagram can use your photos. You own the content you post, but Instagram can use any of it without any issues.
Update: Instagram has put out a statement on their blog saying that they plan to reconsider these changes, and will be modifying the language in the Terms. Instagram also explained that they feel that the Terms were misinterpreted and they did not intend to sell photos. Whatever their intention, the key is the language of the agreement. We look forward to reviewing the revised Terms.
You have until the 16th of January to exit Instagram before this T&C change takes effect.