A freewheel with fewer teeth will give you a "harder" feeling gear but you'll be able to go faster.
A freewheel with more teeth will be easier to pedal from a stop but you'll "spin out" sooner.

Going from 18 to 16 teeth you may not have to shorten your chain at all. It depends on how much horizontal adjustment you have in your bike frame. If you can't tension your chain you'll have to remove 2 links. A special tool is necessary to shorten your chain.