For example, we have 10 t3.medium ec2 instance. Let's say that there are 6 always running 24/7, but the other 4 are not running 24/7, they are turned off when not in use.

If I buy a reserved instance for t3.medium, how does AWS know to apply it to the instances running 24/7 and not part time?

Amazon doesn't apply reserved pricing to a specific instance at all. It basically just applies reserved pricing to your bill. It's like a discount at the time your bill is processed. If you have reserved pricing for N instances, and you have at least N instances running 24/7 reflected in your bill, then the reserved pricing gets applied to those N instances.

Amazon doesn't really care if you are running a single specific instance 24/7, or deleting and recreating instances once a minute. In the end it's just the total number of seconds you have a specific type of instance running each month that they care about, and bill you for.

Be aware that when you setup instance reservations it is actually a capacity reservation. You are telling Amazon you are committing to running this type of instance 24/7 for either 1 year or 3 years. By letting Amazon know this, it helps with their capacity planning, and in return they give you a cost discount. But it also means that they are going to charge you for that reserved capacity even if you don't actually have that instance running 24/7.

When you purchase a reserved instance, you are committing to pay a certain amount now, and a certain hourly price each hour for the next year. Very important: the hourly price will be paid regardless of whether a matching EC2 instance is running or not.

Here's the breakdown of the p2.xlarge options: (assuming 8,760 hours per year)

Option 1: Full upfront

You will pay $5,022.00 now, and $0.00 each hour for the next 12 months.

Total after 12 months: $5,022.00

Option 2: Partial upfront

You will pay $2,562.00 now, and $0.292 each hour for the next 12 months.

Total after 12 months: $2,562.00 + $0.292 x 8,760 = $5,119.92

Option 3: No upfront

You will be $0.00 now, and $0.684 each hour for the next 12 months.

Total after 12 months: $0.00 + $0.684 x 8,760 = $5,991.84

Option 4: Only use OnDemand

Instead of buying a reserved instance, you could simply pay the OnDemand price for your instance.

The OnDemand price for a p2.xlarge instance in us-east-1 is $0.90 per hour. If you are planning on using 1,500 hours, then your cost would be $0.90 x 1,500 = $1,350.00.

None of this will be paid up-front. All will be paid month-to-month as it is used.

Conclusion:

Your best bet it to not purchase a reserved instance, and instead just use the OnDemand pricing.

Sometimes, OnDemand is cheaper compared to reserved instances. That is, as long as you turn off the instance :)

Additional Notes:

You could save more using spot instances, but the pricing for that fluxuates, and the instances cannot be terminated.