It includes monsters and special characters that are not guests. You can have more than 16 characters if any of them are guests... Like, your 17th person could be a guest, see?

So, there is no way to hold more than 16 characters. Guests just don't count toward the 16.

And if you want Reis or Worker 8 or any other non-guest character for that matter, you'll have to do some dismissing and read some sad parting comments. I personally NEVER found Rafa or Malak useful in battle. Rafa is okay for Move-Find Item. That's it