The 8086 chip squeezed a lot of functionality into just 512 words of microcode, making hardware take care of details. The die photo shows these functional blocks on the die. Microcode takes a large area but even registers (like M and N) use a substantial area of the silicon.
Microcode is very low level and pretty tricky, but hopefully this brief Mastodon explanation makes some sense. For a more detailed look at microcode, see my blog post: https://www.righto.com/2023/02/8086-modrm-addressing.html