The key generated from this command is used for gossip encrpytion, which utilizes AES GCM encryption. Using a key size of 16-bytes enables AES-128 while a key size of 32 bytes enables AES-256.
The underlying memberlist library supports the larger key size, and is ultimatley preferable from a security standpoint. Consul also uses 32 bytes by default: 1a14b94441