Windows 95 is a 32-bit operating system, and essentially this means it can handle memory addresses in chunks of 32 bits rather than 16 bits, making it much more efficient than a 16-bit operating system, such as DOS/Windows 3.x. With Windows 95, 32-bit applications can access up to 2Gb of memory. The software from a developer's point of view is simpler and more consistent, potentially leading to less bugs.
16-bit programs will still run on Windows 95; however, it is better to update all your applications if you can. 32-bit applications can take full advantage of a 32-bit operating system. If a 32-bit application crashes it will not crash other programs because of memory protection. However, 16-bit applications share the same memory space so if one crashes it may affect other 16-bit applications.
32-bit applications also allow pre-emptive multitasking, which makes your system run a lot more smoothly. You can load up a file, print another one and install a program, all at the same time.
The Windows 95 programmers were forced to retain backward compatibility with 16-bit applications by translating 16-bit instructions to the 32-bit system, thereby slowing performance and sacrificing stability.
- Ian Yates