Since I saw the whole running 16-bit applications on 64-bit thing...
For one, x86-64 CPUs can execute 16-bit code and can switch between them freely (see
https://en.wikipedia.org/wiki/X86-64#Operating_modes). However, running 16-bit code while in 64-bit mode requires the application to be compatible with 16-bit Protected Mode, which wasn't a popular x86 execution mode. Most people went straight to 32-bit Protected Mode.
So if an x86-64 CPU can execute 16-bit code even in 64-bit mode and even then can switch to a 16-bit operating mode, why can't 64-bit Windows execute 16-bit applications? It's this (from
https://docs.microsoft.com/en-us/windows/win32/winprog64/running-32-bit-applications):
Note that 64-bit Windows does not support running 16-bit Windows-based applications. The primary reason is that handles have 32 significant bits on 64-bit Windows. Therefore, handles cannot be truncated and passed to 16-bit applications without loss of data.
A handle is basically a reference to a system resource. In previous versions of Windows, the handle limit per process
was supposedly 10,000, but
Microsoft's official documentation says the limit can be as high as 65,356 for 32-bit applications. Either way, this value fits in a 16-bit value. This
limit was apparently raised to 16,777,216 at some point, which requires at least 24-bits, so the handle value was bumped up to at least 32-bits at that point. It's likely 32-bit applications treated the handle number as a 32-bit value by default even if the maximum value would never exceed 16-bits. However, 16-bit applications would've treated this as a 16-bit value, or at least, they expected a 16-bit value. So if it got a value that exceeded 16-bits, then it presents a problem because you can't chop off the upper 16-bits as that could mean another handle.
Note that WINE supports running 16-bit applications on 64-bit kernels without needing to resort to virtual machines or whatnot. Microsoft could've done whatever WINE was doing, but they probably decided that supporting 16-bit applications in Windows wasn't worth their time and used the quoted text as their excuse.