Although the 8086 had 16-bit registers, it created a larger 20-bit address space by breaking memory into segments. A special address adder computed the physical address from the segment and offset. These values moved through the chip over the internal AD and C buses.
This diagram shows the main functional blocks of the 8086. The address/data pins are along the edges. The address adder is in the upper left. Address and data values move across the various buses. Complicated bus control logic handles the memory accesses.