How does buying Whatsapp benefit Facebook? How can they make money from it and how could it possibly be worth $16 billion?

The main benefit is Whatsapp's client base - Whatsapp has roughly 450 million users.

Facebook, like many other companies, earns its revenues from ads and selling premium services, so now they'll have 450 million more clients earn money from.

Also, Whatsapp, being a chat application and essentially a social network, is in direct competition with Facebook. This allows Facebook to eliminate the competition.