Instagram added 'Stories' a while back, enabling users to post photos and short videos that only last 24 hours. Even though it's a direct clone of Snapchat's own Stories feature, there are more people using it than the collective userbase of Snapchat itself. So, it only makes sense that Instagram would continue to improve it, and now you can reply to Stories with photos and videos.
When you're viewing a friend's Story, a new camera icon is visible at the bottom left. Tapping this will open the camera, allowing you to send a picture or short video. You can also annotate it with text and stickers, just as if you were posting to your own Story. Once you're done, just press the Send button at the bottom of the screen.
The new feature appears to be part of Instagram 10.29, which you can grab from APKMirror if it hasn't rolled out to you yet.