FP16, or half-precision floating-point format, is a numerical representation that uses 16 bits to store data. It is commonly used in computing and graphics to represent real numbers with reduced precision compared to the standard 32-bit FP32 format. This smaller size allows for faster processing and reduced memory usage, making it particularly useful in applications like machine learning and graphics rendering. The main advantage of FP16 is its efficiency, as it can speed up computations and decrease the amount of data transferred in systems. However, it has limitations in precision and range, which can lead to errors in calculations if not managed properly.