/vr/ - Retro Games

Unless they are directly drawn in the backgrounds (as in Final Fight for example), the non-playable characters are sprites that can’t exceed 16 colors each, knowing that one of these colors is used for transparency -as a green screen in cinema, sprites are stored on a colored background (generally green, blue or pink); that color doesn’t appear on screen in the game, thus letting other elements such as backgrounds, items and characters appear behind the sprite.
The colors of the user interface generally stay the same during the whole game which constitutes an additional constraint. You can allocate a palette to the UI or use colors common to every playable character.
Depending on your choices, there’s only one or two palettes left for the backgrounds and the enemies. Using the same palette(s) for both can be very useful, the enemies can reappear further in the game with different colors.
Backgrounds and sprites are made of tiles, a tile is a block made of pixels that you can apply as a clone stamp (since you can’t store an infinite quantity of data, tiles are very often displayed several times on the same screen). If you have chosen to allocate 2 palettes to the backgrounds, it may be necessary to incorporate some colors in both palettes in order to make the tiles fit.

Techniques such as dithering could be used to simulate more colors by alternating pixels of 2 different colors, as if you were painting a chessboard.