Genesis / Megadrive Colour Palette

In regards to equal shading, the Genesis color palette values are R3G3B3, that is three bits per color value: 0000BBBSGGGSRRRS (S is shadow/highlight, which changes the luminance but in an odd way that I can't tersely describe here). Therefore, each component has eight luminances: 0, 2, 4, 6, 8, $A, $C, and $E.

Here is the MD palette:

Left is with shadowing, middle is normal, right is with highlight.

More info: http://segaretro.org/Palette#Mega_Drive_Palette

 

It's just a reduced true-color palette, with only 3 bits per component.

The purpose of that is making the fading sequence smoother. If all components were reduced/increased together, the whole fading sequence would have only 8 steps (with 3 bits you can only represent 8 values). To make it longer, different color components are modified at different times/rates.

Some Master System games do the same thing (not Sonic games though), and they really benefit from that since that system has only 64 colors. A good example is Daffy Duck In Hollywood. The Game Gear doesn't need this, having 4096 colors and all.

The SNES not only can show more colors than than the MD at any given time, but it also has a bigger palette to pick colors from, so it can get away with fading by modifying only the luminance.

 

I don't think those S bits are used at all (at least the ones at CRAM). Coming to think on it, it may have been there for padding purposes? Doing it this way, each component matches a hex digit, and if they ever wanted to upgrade the hardware to have more colors, having the LSB free allows for more accuracy without needing any special handling for old palettes (which can be used as-is).