Test test1 = new Test();
here, new Test() means create new instance of class Test and assign it to reference test1.
Class<Test> test2 = Test.class;
Test test2Instance = test2.newInstance();
I am not able to define (in words) 1st statement. On the other hand 2nd statement it pretty clear to me.
EDIT
String is an instance of the class Class.
A string literal (e.g. "I am a string.") is an instance of the class String.
class literal (e.g. Hashtable.class) is an instance of the class Class.