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The palette system
The palette system in Frogman Magmaborn is heavily inspired by the one in the original NES, but it isn’t entirely accurate, ignoring multiple restrictions.
All palettes have exactly 4 colours. Internally, all image files use the same four colours (see below), and are coloured on the fly in-game using a shader.

Colouring example. Every single image file in Frogman Magmaborn uses these greyscale colours.
For transparent images (aka sprites – more on that below), the dark-grey colour is replaced with transparency.

Sprite colouring example.
In addition, all image file sizes are multiples of 8 pixels. You can view the resolution of every type of graphic in the game in Frog Forge, by clicking Help -> Colors & resolutions.
Frogman Magmaborn uses similar colours to the NES:

All in-game graphics are divided into sprites and backgrounds, like the NES:
Background palettes have no transparency, and always use black as one of the colours. Background graphics are almost always stationary and are placed on an 8x8 pixels grid. However, each “tile” can use a different palette.

Some in-game backgrounds. Notice how different tiles use different palettes.
Sprite palettes have a transparent colour instead of a fourth colour. In addition, in Frogman Magmaborn, sprites also always use black as one of the colours. Sprites are used for all moving graphics, all text, and more. Unlike the NES, there is no limit on the number of sprites per scanline.

A map with all background graphics removed. As you can see, most graphics are sprites.
During battles, all sprite palettes are used for units (three team palettes and one palette for inactive units), while the background palettes are split evenly between tile-set palettes and portrait palettes.

A sample state of the 8 palettes during a battle.