This sounds like a fairly typical situation for adult learners. They probably learnt grammar rules and vocabulary at school without learning how to use them in conversation. Your approach is absolutely right: you need to get them practising and communicating using the language they know.
I think that one of the easiest ways to get people speaking and using the language is to give them tasks that are slightly below the level they are at. They will gain more confidence and then be able to tackle tasks at their level and slightly above. Get hold of any book that focuses on communicative activities. I think that games are useful for this; there are many commercial games designed for adults that would be suitable. You can look at photocopiable games in any good book store or online. These games are designed to practise language in a motivating way. You also need to find ways to recycle the language; to get them using it more often and in more varied ways; again, your suggestion for games will help with this. You can also recycle the language by bringing it back as a pronunciation activity.
You also asked about these recurrent errors. It’s normal for students to continue making basic mistakes even when they know the language. The key here is how you handle error correction. You can look at this post where I have answered questions about error correction.viewtopic.php?f=2&t=2270
As for your students not understanding instructions, you can present and practise useful phrases (e.g. turn to page 10; listen and take notes; what did you put for number 4? I don't agree. I think it's ... Could you pass me the ...) as you would any other language point. It's important to give them lots of practice and to get the pronunciation correct. You can follow this up in later lessons and keep the language posted in your classroom as a reminder. Then make sure that this language is used in the classroom whenever possible, e.g. when checking homework.
I hope this will help you; please get back to us again, if you would like more ideas.