How to divide 256X256 matrix into sixteen 16X16 blocks?

You need to use mat2cell:

X = reshape(1:20,5,4)'
C = mat2cell(X, [2 2], [3 2])
celldisp(C)

This code returns

X =
     1     2     3     4     5
     6     7     8     9    10
    11    12    13    14    15
    16    17    18    19    20

C = 
    [2x3 double]    [2x2 double]
    [2x3 double]    [2x2 double]

C{1,1} =
     1     2     3
     6     7     8

C{2,1} =
    11    12    13
    16    17    18

C{1,2} =
     4     5
     9    10

C{2,2} =
    14    15
    19    2

In your case:

A = rand(256); % your matrix here
N = 16*ones(1,16);
B = mat2cell(A,N,N);