If a CPU has a 16 bit address bus and 8 bit words, how much memory can it address?

A word, in the majority architectures, is the largest piece of data that can be transferred to and from the working memory in a single operation.

The largest possible address size, used to designate a location in memory, is typically called a hardware word.

So, your CPU will be able to address 64KB (2^16) but will only be able to transfer in a single operation 8 bits.

A machine word, or commonly just word is the largest unit of data that the CPU can manipulate as a whole using common instructions. This has nothing to do with memory addressing.

What matters is the unit of address resolution, which is commonly an 8-bit byte even on 16/32/64 bit architectures. It doesn't have to be equal to the machine word size, but it probably is in your case.

An 8-bit addressable unit combined with 16-bit address bus amounts to 64KiB of RAM that the CPU can address.