The 16 bit Microprocessor means that it has 16 address lines.
A 16 bit microprocessor is having 16bit register set. It have 16 address and data lines to transfer address and data both. Hence it is 16 address lines. The maximum addresses are 2^16 means 65536.
The term is often applied to the following: microprocessor: indicates the width of the registers. A 16-bit microprocessor can process data and memory addresses that are represented by 16 bits. bus : indicates the number of wires in the bus. A 16-bit bus transmits 16 bits in parallel.