The Sound Bug is one of the add-on sound options from Digitrax. It is sound-only, so you must have another decoder for motor and lights. The 165 series decoders are plug-compatable with the Sound Bug.
You don't have to have a 165 series decoder to use a Sound Bug. It can be hard-wired. The only connection to the 165 is power, and you can just wire the Sound Bug to track power (red and black wires) if you'd like.
Sound Bugs are decoders, and must be programmed with an address like any other decoder. With another Digitrax decoder, there should be no problems doing this. With a decoder from other manufacturers, though, there may be conflicts that make programming more awkward.
Sound Bugs come with generic "diesel" and "steam" sounds. One of their best features is the ability to download different "sound projects" into them. So, if you can find (or create) a sound project for your specific engine, you can get more prototypically correct sounds into the Sound Bug.
Sound Bugs, IMHO, suffer from a very low volume level, though. They're not going to compete with the more high end decoders on loudness. The Sound Bug comes with a speaker, but it's a rather large one and you may have trouble squeezing it into most HO engines.