How significant is 16bit in 16bit PWM resolution?
Trying to find the real question in your question, which is a bit unclear...


  Is there something to do with PWM frequency and resolution considering the flickering of led.


PWM frequency is important: below a few hundred Hz, it will flicker, and this is unpleasant. But above this, your ceramic capacitors can whine, which is also annoying.

So, 25kHz is a good PWM frequency. Capacitor noise is inaudible, and it sure won't flicker. With 8-bit PWM this gives a minimum clock frequency of 6.4 MHz.

If your micro has a 8MHz clock and a 8-bit timer, then there is no problem, except if you want to allow very low light output.

If your LED puts out, say 256 lumen... then with the PWM at 1/256 duty cycle it still outputs one lumen. If you want lower, you'll have to use a PWM with more bits.

Note that PWM is not the only way to dim a LED. You can also control the current directly, if the driver allows this. This can be more efficient, but light output does not vary linearly with current.