Yes, it is using the 16 bits (or at least some of them), this could be done in two ways, either somewhere else in the program (or an HMI those individual bits are being manipulated i.e. being used as bits rather than a word (i.e. integer value), or again somewhere the word is being manipulated & the originl programmer is taking the individual bits to energise an output.
For example:
setting a value in N7:0 the corresponding bits will be true
so a value of 1 N7:0/0 will be true
Value of 2 N7:0/1 will be true
a value of 3 N7:0/0 & N7:0/1 will be true
A value of 4 N7:0/3 will be true.
A value of 5 N7:0/0 & N7:0/3 will be true.
from the above rung I would say it is unlikely that N7:0 is used as an integer value as any vlue of 2,4,5,6,7,8,10 & so on.