Stories for instance set up to entertain the Navy (5)
I believe the answer is:
yarns
'stories' is the definition.
('yarn' can be a synonym of 'story')
'for instance set up to entertain the navy' is the wordplay.
'for instance' becomes 'say'.
'set up' shows that the letters should be reversed in order.
'to entertain' indicates putting letters inside.
'the navy' becomes 'rn' (abbreviation for Royal Navy).
'say' backwards is 'yas'.
'yas' placed around 'rn' is 'YARNS'.
(Other definitions for yarns that I've seen before include "Threads spun from wool, cotton, etc." , "rambling stories" , "Wools or stories" , "Anecdotes" , "Stories, threads" .)