I was looking at the rules for constructing spells in the book The First Year of Our REIGN, and was a little confused by the wording on one of the effects. The effect is a +7 to intensity, and says "All locations fill with Killing damage". Does this mean that the spell is essentially an instant-kill to whatever it hits, or does this mean only that every location fills with width in killing damage? The price is very high, but the effect seems very powerful even then. I understand the spell construction rules were written to be overseen by a GM, but am I still reading the effect correctly as an instant-kill?
That's an insta-kill spell, yes. It's used to model things like finger of death and other such lethal spells.
Note that the spell creation system isn't for players at all, and is strictly for GM world-building. That's important to keep in mind, because then balance isn't an issue and it makes sense to give the GM the whole gamut of options.