Bug report:
notepad-plus-plus/notepad-plus-plus#13778

Here is illustration to turn Always in multi-instance mode option ON:

The correct/legacy behaviour with Always in multi-instance mode option ON is:
If Notepad++ is launched manually N times, there should be N instances of Notepad++ open.
Here the scenario:

1. Firstly user selects A.txt & B.txt via Explorer, then right-click to run Edit with Notepad++, the 1st instance of Notepad++ will be launched, and contains both A.txt & B.txt.
2. Secondly user selects X.txt, Y.txt & Z.txt via Explorer, right-click to run Edit with Notepad++, the 2nd instance of Notepad++ will be launched, and contains both X.txt, Y.txt & Z.txt.

Such legacy behaviour has been verified in an old version (v8.3.3) of Notepad++, and the result is as expected.
Here's its debug info:

Notepad++ v8.3.3   (64-bit)
Build time : Mar 13 2022 - 17:20:02
Path : C:\Program Files\Notepad++\notepad++.exe
Command Line : "C:\eula.2052.txt" "C:\eula.3082.txt" "C:\globdata.ini"
Admin mode : OFF
Local Conf mode : OFF
Cloud Config : OFF
OS Name : Windows 10 Pro (64-bit) 
OS Version : 2009
OS Build : 19045.2604
Current ANSI codepage : 1252
Plugins : mimeTools.dll NppConverter.dll NppExport.dll

However, after updating Notepad++ from v8.3.3 to v8.5.3 (and restart Explorer process), then open the same 3 files via Edit with Notepad++, 3 instances has been opened, and each instance contains 1 file:

Instance 1:

Notepad++ v8.5.3   (64-bit)
Build time : May 15 2023 - 06:09:36
Path : C:\Program Files\Notepad++\notepad++.exe
Command Line : "C:\eula.2052.txt"
...

Instance 2:

Notepad++ v8.5.3   (64-bit)
Build time : May 15 2023 - 06:09:36
Path : C:\Program Files\Notepad++\notepad++.exe
Command Line : "C:\eula.3082.txt"
...

Instance 3:

Notepad++ v8.5.3   (64-bit)
Build time : May 15 2023 - 06:09:36
Path : C:\Program Files\Notepad++\notepad++.exe
Command Line : "C:\globdata.ini"
...

Manually launch Notepad++ v8.5.3 from command line, by keeping Always in multi-instance mode option ON:
notepad++.exe "C:\eula.2052.txt" "C:\eula.3082.txt" "C:\globdata.ini"
3 files are opened in the same instance, and here its debug info:

Notepad++ v8.5.3   (64-bit)
Build time : May 15 2023 - 06:09:36
Path : C:\Program Files\Notepad++\notepad++.exe
Command Line : "C:\eula.2052.txt" "C:\eula.3082.txt" "C:\globdata.ini"
Admin mode : OFF
Local Conf mode : OFF
Cloud Config : OFF
OS Name : Windows 10 Pro (64-bit)
OS Version : 22H2
OS Build : 19045.2604
Current ANSI codepage : 1252
Plugins : 
    mimeTools (2.9)
    NppConverter (4.5)
    NppExport (0.4)
    NPPJSONViewer (1.40)

Conclusion:
NppShell launches N times Notepad++ if N files are selected in Explorer - It is not correct: NppShell should launch notepad++.exe only once and pass the file paths altogether to it.