I had a hard time understanding what the author is trying to accomplish. The necessary context apparently is spread across the intro and outro:

> Because of that, later PalmOS versions offered two different encodings for storing color bitmaps: 8 bits palette bitmaps, capable of using up to 256 simultaneous colors

> to perform complex bitmap rendering using multiple, incompatible color palettes

It seems the palette is not per-bitmap but rather per-device, hence the need to convert.

Dithering the errors across the image would make the final result a lot more palette-able.