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For AWS instances that require close physical proximity to optimize performance, the appropriate feature is Placement Groups. Placement Groups are designed to control the placement of instances within a specific physical location in the data center, which can help benefit workloads that require high throughput or low latency, such as high-performance computing (HPC) or big data applications.

By using Placement Groups, instances are launched in close proximity to one another within the same availability zone, thereby minimizing network latency and maximizing network bandwidth. This is particularly crucial for applications that need rapid communication between instances, as it enhances the overall performance and efficiency of the application.

The other options, while important for different aspects of cloud architecture, do not offer the same level of control over physical proximity as Placement Groups. For example, Availability Zones provide redundancy and fault tolerance across different data center locations, but they do not ensure that instances are closely located within the same zone. VPC Peering facilitates networking between different virtual private clouds but does not impact the physical locations of instances. Auto Scaling Groups are primarily used for adjusting the number of instances based on demand but do not directly relate to the physical proximity of instances for performance optimization.