When I look into my VMSS in Azure, and enters the "instances" blade, for each instance there is a property "Latest model" which can be either "No" or "Yes".

What does this property mean? I couldn't find any documentation about it.
The Latest Model inside the VMSS instances blade is know as the Latest Scaleset Model.
If it is Yes, then its the latest scaleset model and vice versa for No. There are couple of ways to change it to Yes i.e. Manual , Automatic and Rolling which can be set from the upgrade policy blade of the VMSS .

In Manual you will have to run the below command to update the scaleset model:
Azure CLI :
az vmss update-instances --resource-group myResourceGroup --name myScaleSet --instance-ids {instanceIds}
Output :
Before Update:

Only Update the last one with instance ID = 8 :


Update the remaining two by giving space separated instance id's:


For More details on Modify Scaleset Model you can refer this Microsoft Documentaion.
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