Fp16 is a data format they use per pixel during HDR. It means they are using 64bit for describing each pixel instead of the ordinary 32 (16 bit for each of the RGB channel and 16 for alpha, where it is regularly 8 for each of those 4 channels).
More bits per pixel means you can represent a larger set of colors, and that's because it allows you to have in the same scene all the range through whiter than white and blacker than black still having detail (compared to non-HDR rendering). One game that does this (but it does so by rendering two images and blending them into one HDR image) is Halo 3. If you tried the cinema mode you will notice that even on the brighter explosions you can still perfectly make out every detail of the image, while games that do this sort of bloom without HDR usually end up with a almost blank white screen.
Image samples:
Halo 3:
http://imageshack.us/f/69/13082975fullcw6.jpg/ (See how in the same scene they have a hugely shadowed area that while very dark can still be seen in detail, and at the same time the bright area even though is super bright can still be seen with detail too. Without HDR the pixel format wouldn't have enough data to go all the way through both extremes, and it would clamp some colors after a certain point, meaning that all the bright area would be the same white and all the shadowed area would be the same black.
Oblivion:
http://img.clubic.com/photo/00137474.jpg (Notice how everything that is bright is just plain white, they are probably not using any dynamic range adjusting so even thought the scene doesn't need to go through all the range of black -> white it still doesn't have enough information to provide detail on the bright areas)
For current gen hardware FP16 was very costly, so Ms designed a special mode for xenos, called FP10. It was still 32bit, but they increase the bits amount in the color channels by removing bits from alpha. It had it's drawbacks, but in most cases it provided a good enough and free "HDR" solution for 360 (Bungie called it MDR, as in medium dynamic range, and while it wasn't enough for going to black -> white in a single scene it had enough room for scenes that went gradually from one to another) . However i think that FP16 is nothing out of the ordinary for current GPUs, they probably already support even higher pixel formats.
