Instruction Decode is a crucial step in the CPU processing cycle, where the fetched instruction is translated into signals that the CPU can understand. During this phase, the CPU identifies the operation to be performed and the operands involved, which are the data or addresses needed for the operation. Once the instruction is decoded, the CPU prepares to execute it by organizing the necessary resources. This involves determining which ALU (Arithmetic Logic Unit) operations are required and setting up the data paths for the execution stage. Proper decoding ensures efficient processing and accurate execution of instructions.