LLVM code generation for 16-bit x86 isn't for the targeting support of the original Intel x86 CPUs or anything funky like that, but 16-bit code generation support is needed by a some open-source applications such as Wine.
David Woodhouse out of Intel's Open-Source Technology center has been principally responsible for LLVM 16-bit x86 mode enablement. With his latest LLVM/Clang compiler code, Woodhouse has been able to build the 16-bit startup code of the Linux kernel to work.
There aren't any major known issues with the 16-bit x86 LLVM support and is now encouraging real-world testing of LLVM's new code generation ability. More details on the 16-bit LLVM support can be found via this mailing list post.