Usually the addresses are generated by some combination of a counter, a field from a microinstruction, and some subset of the instruction register. A counter is used for the typical case, that the next microinstruction is the one to execute. A field from the microinstruction is used for jumps, or other logic.
Since CPUs implement an instruction set, it's very useful to be able to decode the instruction's bits directly into the sequencer, to select a set of microinstructions to perform a CPU's instructions.
Most modern CPUs are considerably more complex than this description suggests. They tend to have multiple cooperating micromachines with specialized logic to detect and handle interference between the micromachines.
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