Basic Question in networking - why max data size of ip datagram 65535 BYTES and not 65535 bits?
16 bits is not the size of the IP datagram; it is the amount of bits required to encode its length. Hence, you can have datagrams of length up to 65536 octets (i.e., bytes), as described in RFC 760:


  Total Length:  16 bits
  
  Total Length is the length of the datagram, measured in octets,
      including internet header and data.  This field allows the length of
      a datagram to be up to 65,535 octets.


Notice 65536 is not a prescribed length, that is, the length of the datagram is (or can be) variable.



Now, to answer your two questions:


  Do we say each 16 bit pattern is 1 IP datagram or all those 65536 patterns as 1 IP Datagram?


Each octet pattern of up to 16-bit length is a datagram. In informal parlance, a datagram is simply a packet which IP adds its header to. You could call the set of all possible patterns a "datagram space", though I doubt that's standard terminology. (You might care to ask that in a separate question.)


  If i consider all 65536 patterns as max data size, then max ip datagram size =65536 patterns size=65536∗16 bits =65536∗16/8 bytes =65536∗2 bytes 


I'm not sure I see a question here. Though I suppose any one you had is answered by my remark about the datagram length above.