An instance variable is a variable that is a member of an instance of a class (i.e., associated with something created with a new), whereas a class variable is a member of the class itself.

Every instance of a class will have its own copy of an instance variable, whereas there is only one of each static (or class) variable, associated with the class itself.

What’s the difference between a class variable and an instance variable?

This test class illustrates the difference:

public class Test {
   
    public static String classVariable = "I am associated with the class";
    public String instanceVariable = "I am associated with the instance";
    
    public void setText(String string){
        this.instanceVariable = string;
    }
    
    public static void setClassText(String string){
        classVariable = string;
    }
    
    public static void main(String[] args) {
        Test test1 = new Test();
        Test test2 = new Test();
        
        // Change test1's instance variable
        test1.setText("Changed");
        System.out.println(test1.instanceVariable); // Prints "Changed"
        // test2 is unaffected
        System.out.println(test2.instanceVariable); // Prints "I am associated with the instance"
        
        // Change class variable (associated with the class itself)
        Test.setClassText("Changed class text");
        System.out.println(Test.classVariable); // Prints "Changed class text"
        
        // Can access static fields through an instance, but there still is only one
        // (not best practice to access static variables through instance)
        System.out.println(test1.classVariable); // Prints "Changed class text"
        System.out.println(test2.classVariable); // Prints "Changed class text"
    }
}

Put them in the constructor if you think they're somehow related to the object creation. For example creating a square, you'll need it's size, but adding a color is not a mandatory thing So in this case length will be set in the constructor, color will be set via setter method.