The 8086 microprocessor is a 16-bit processor introduced by Intel in 1978. It has a 16-bit data bus and 20-bit address bus, allowing it to access up to 1MB of memory. The 8086 has an internal architecture divided into a Bus Interface Unit and an Execution Unit that can work simultaneously. The BIU handles external bus operations like fetching instructions and data from memory, while the EU decodes instructions and performs arithmetic/logical operations. The 8086 supports memory segmentation through the use of segment registers and pointers to generate 20-bit physical addresses.