Memory architecture and instruction storage - Naimi: AVR Microcontroller
Okay so:
LDS R10, $FFFF is the instruction and it's resolved into bytes (2 or whatever bytes) and the entire thing is stored in the 'code'. 

AVR 'code' and 'data' are like C, code segment and data segment. The compiler allocates storage for variables/string literals in 'data' (not constants).

The CPU slurps the entire instruction (2 bytes) using the Program Counter register. It decodes it (extract the register/address/opcode info) and executes the instruction by latching the address onto the address bus, and taking the value off the data bus into the register R10.