A 16-bit system refers to a computer architecture that processes data in 16-bit chunks. This means it can handle 65,536 different values (2^16), allowing for a range of operations and memory addressing. Commonly used in early personal computers, such as the IBM PC and Commodore 64, 16-bit systems were significant in the development of software and gaming during the 1980s and early 1990s. In a 16-bit system, the CPU can manage 16 bits of data at a time, which affects performance and capabilities. These systems typically support a maximum of 64KB of RAM directly, limiting the complexity of applications. As technology advanced, 32-bit and 64-bit systems became more prevalent, offering greater processing power and memory capacity.