The question is essentially do you want to install 32 or 64 bit windows. If it's asking you then whatever you're installing from is able to install either architecture. If you have a 64 bit cpu then install x64, otherwise install x86. 32 bit applications will work on a 64 bit OS (for Intel and AMD anyway) but not the other way around. If you don't know whether your cpu is 32 or 64, just wikipedia or google it.
And as herr_koos said, 16 bit apps probably won't work - if you have apps that are.. i dunno, say, more than 10 years old? You'd need some kind of 16-bit virtual machine to run it :S