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We present a systematic study to address a longstanding mystery in magnetic materials and magnetism, whether there is giant saturation magnetization in Fe16N2 and why. Experimental results based on sputtered thin film samples are presented. The magnetism of Fe16N2 is discussed systematically from the aspects of material processing, magnetic characterization and theoretical investigation. It is observed that thin films with Fe16N2+Fe8N mixture phases and high degree of N ordering, exhibit a saturation magnetization up to 2.68T at room temperature, which substantially exceeds the ferromagnetism limit based on the traditional band magnetism understanding. From X-ray magnetic circular Dichorism (XMCD) experiment, transport measurement and first-principle calculation based on LDA+U method, it is both experimentally and theoretically justified that the origin of giant saturation magnetization is correlated with the formation of highly localized 3d electron states in this Fe-N system. A large magnetocrystalline anisotropy for such a material is also discussed. Our proposed “cluster+atom” theory provides promising directions on designing novel magnetic materials with unique performances.