Currently i have set up a single instance of tomcat and postgres with multiple applications running. Which is better performance wise ? Single instance of postgres or having one instance of postgres per application ?
Shouldn't matter. Performance it depends mainly on the configuration of the Postgres instance. Prefer a single instance of Postgres, because managing two on the same machine will be harder.
It depends greatly on what those dbs are doing as to whether or not having > 1 pg instance makes sense. If they're all small, low traffic sites, then one instance is fine. If one is a large data warehouse and the other is a time sensitive transactional database, it might be best to set them up in separate clusters.
On the postgresql side, its better to have a single instance, even more if your applications share data between then.
If you need more power in the future, you can try some type of replication, like master-slave with a pg-pool redirecting read-only queries most times to slaves.
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