You can connect the TXD pin on each 8051 to the RXD pin on the other 8051 chip, and it will work. However, you lose the benefits associated with the use of RS-232 level translators, namely larger voltage swings and larger noise margins. This configuration is generally not suggested, as it is likely to prove problematic at any appreciable distance, especially at higher speeds. I would only entertain it as a possibility for two chips on the same board that are in relatively close proximity in an electrically mild environment.

Secondly, the classic 8051 UART does not support hardware flow control natively, and the same is true for the derivatives I am familiar with. It also doesn't have a FIFO, so in some ways it's not all one would expect when a modern UART comes to mind. Perhaps another forum member knows of some derivatives with enhanced UARTs?

So, if you want flow control and you only have a primitive 8051 UART, you have a couple of choices. If you require hardware flow control, you can bit-bang RTS/CTS using general purpose I/O lines (port pins, I/O expander lines, etc.), or you can attach a more fully functional complete hardware UART. There are many different types hardware UARTs, from classic parallel-interface devices like the 16550 and its descendants to modern serially attached devices like the MAX3110. No matter the hardware flow control implementation technique, however, the consideration regarding RS-232 voltage levels remains. Incidentally, the MAX3110 has integrated RS-232 level converters which may be used.

Software flow control may also be an option, but is generally inferiror to its hardware counterpart. See here for a more detailed treatement of the matter:

http://www.8052.com/forum/read.phtml?id=109529

--Sasha Jevtic