you are locking down a single piece of hardware just for your purposes.

Dedicated Instance does not work like this. Your instance runs on some dedicated hardware. Its not lockdown to you. If you stop/start instance, you can get some other hardware somewhere else. Basically, the hardware is "yours" (you are not sharing it with others) for the time your instance is running. You stop/start it, you may get different physical machine later on (maybe older, maybe newer, maybe its specs will be a bit different), and so on. So your instance is moved around on different physical servers - whichever is not occupied by others at the time.

With Dedicated Host the physical server is basically yours. It does not change, it's always the same physical machine for as long as you are paying.

Dedicated tenancy is more intended for compliance reasons where you need to prove that no one else's workloads run on the same physical machine. It may or may not have speed benefits as a side effect but it's certainly not the primary reason for using Dedicated instances.

If you want to achieve low latency have a look at Placement Groups and in particular Cluster Placement Group that is designed for low latency:

Cluster – packs instances close together inside an Availability Zone. This strategy enables workloads to achieve the low-latency network performance necessary for tightly-coupled node-to-node communication that is typical of HPC applications.

Hope that helps :)