The 8086 microprocessor is an enhanced 16-bit version of the 8085 microprocessor. It has a more powerful instruction set, can access more memory (up to 1MB), and supports faster processing through features like an instruction queue and two-stage pipelining. The 8086 architecture includes an execution unit and bus interface unit. The execution unit performs operations using an ALU and registers, while the bus interface unit handles data transfers between memory and I/O.