We type exactly what you enter in the caption box into the Instagram app.
That includes line breaks / carriage returns / paragraph spaces -- many people like to use these to break up their captions.
But it's not that simple unfortunately, because Instagram is a bit quirky about line breaks in captions. We've written a post about it here:
You can read the post above for some good tips about how to make sure your line breaks "stay" with the post, such as not including spaces at the end of lines, and not having Emoji at the 'end' of a paragraph or the start of the next.
Unfortunately how Instagram chooses to display the content that you upload is something that obviously they control, and we can't change that!
A Google about line breaks in Instagram will unearth many different theories and tips, and it does seem that the advice changes very often.
Our best recommendation is experimenting to see what will work for you (note that instagram.com often does not display the same as in the iOS or Android app!).