It seems to seed from the shape of the original island to the point that .
if your 16x16 is flat so will your infinite terrain be and if it has peaks and troughs then the infinite terrain will also have similar but not so high and low in there values , it does produce small lakes too.
It is however a very cheap way to create a nice infinite land and would be nice for MP games because the infinite terrain never changes onload so, any units static objects etc placed in editor will be ok and not in the air .
of course if you do make a 16x16 map you must becareful of how you ste zoom in the map or you wont see this infinite terrain to place things in editor.