I have used an LLC for other business activities. If you have assets, it is probably a good idea, but make sure you understand how taxes and fees work. It might make more sense just to get an umbrella insurance policy.
It varies by state...CA for example has an $800 annual base tax/fee which is in addition to your actual taxes (this has always been on the books, but was a legal grey area...it will be enforced for 2009 onwards) .For most business activities $800 would buy a lot of insurance, but perhaps not enough in aviation.
An regular corporation is a separate legal entity, which files it's own taxes. An LLC is similar, but in the case of a small business it has less paperwork requirements, and the income/loss gets passed directly through to the owner(s), who report it on their personal taxes. As a CFI, you probably want an LLC for simplicity.
Considering some recent changes in CA, I think an LLC is only economical for a full-time business, not a part-time professional service gig like flight instructing. It may be different in your state, research what the overhead admin, taxes, and fees are.