What is happening in this part of the LC3? This is a diagram of the LC3 Computer


I am trying to understand what is happening in the parts I highlighted. The part I had highlighted had the instruction bit sign extended to 16 bits and then passed on to the SR2 Mux. Does anyone know what instruction is being carried out here or what the role of the mux(SR2) is here?
This would appear to be a picture of the LC-3 data path from the book Patt, Yale N; Patel, Sanjay J: Introduction to Computing Systems.

The IR is the instruction register, the register where the actual bits of the instruction are fetched in the beginning cycles of processing the instruction.  The SEXT unit takes the immediate field out of the instruction.  The SR2MUX is used by the control unit to control whether the second operand of the instruction comes from a register operand or the immediate operand.