You get that error because the game or at least it installer is 16-bit. 64-bit versions of windows have done away with 16 bit backwards computability.
You would need to use a VM(to install an old version of windows on to. Virtual Box works well enough) or install an older(or maybe even just the 32 bit version would work) version of windows on your computer.
If the game works in DOS, you can use dosbox, but i think it was windows only.
EDIT. looks like it MAY work in DOSBOXhttp://games.holyfile.com/?Dune/Strategy/Abandonware/download/2352