First and foremost, the "16GB" of space is actually 15GB, since advertising defines 1GB as 1 billion bytes instead of 2^30 bytes as it is actually defined by the OS.
Next, from that 15GB of space, you've got roughly 5GB or so that's reserved for the system, drivers, firmwares, etc. The remaining 9.71GB of space is where your apps and anything else saved to your internal storage go. You *can* use the "move to SD" option to move apps if you're running low on space, but I wouldn't advise it unless absolutely necessary. Unless something's changed since Gingerbread, only certain apps can be moved, and even then any widgets those apps have will NOT function if you've moved the app. (yes, I know I'm off by .3GB, but I think that's just from rounding)
Apps and most of their data are saved to the location /data, but you can't access that unless you're rooted. Some of them make use of either the internal or external storage (/sdcard and /extSDCard) as well, but it all depends. Safest bet is to keep away from the folders "Android" and "data" on /sdcard, since that's where apps will sometimes dump files they need to run. Also, if a folder name is similar to an app name, use caution since it might be part of the app.
I'm not sure on /Device to be honest, since I'm running a custom ROM and haven't really paid attention to that one. I don't think it's the OS though, since you normally aren't supposed to be able to use a file explorer to browse around the OS files.
Look! A distraction!