A palette is a look-up table that is used to translate an index value into a color value (known as an RGB value, for Red, Green, Blue). There are two types: Common and Custom.
Color images are often stored using a palette so that they take up less space. Such an image is said to be palettized. A complex image that has been palettized is often of lower quality than the original image. This is due to the fact that the eye can distinguish many more colors than are usually available in the palette.
Windows reserves 20 palette entries to use for window backgrounds, borders, and so on.