Disadvantages
The main disadvantage of using indexed color is the limited set of simultaneous colors per image. Small 4- or 16-color palettes are still acceptable for little images (icons) or very simple graphics, but to reproduce real life images they become nearly useless. Some techniques, such as color quantization, anti-aliasing and dithering combined together can create indexed 256-color images comparable to the original up to an acceptable level.
For comparison, here is the same image rendered with a 4-, 16-, and 256-color size with adaptive palettes (the best picked selected colors) without dithering, (full truecolor version at top):
Indexed color images are heavily dependent on their own color palettes. Except for a few well known fixed-color palettes (such as that of the Color Graphics Adapter—CGA), raw image data and/or color map tables cannot be reliably exchanged between different image files without some kind of intermediate mapping. Also, if the original color palette for a given indexed image is lost, it can be nearly impossible to restore it. Here is an example of what happens when an indexed color image (the previous parrot) has been associated with an incorrect color palette:
Indexed color graphic modes for display adapters have the 16- or 256-color limit imposed by hardware. Indexed color images with rich but incompatible palettes can only be accurately displayed one at a time, as in a slideshow. When it is necessary to show multiple images together, as in a mosaic of thumbnails, a common or master palette is often used, which encompasses as many different hues as possible into a single set, thereby limiting the overall accurate color availability.
The following image is a mosaic of four different indexed color images rendered with a single shared master palette of 6-8-5 levels RGB plus 16 additional grays. Note the limited range of colors used for every image, and how many palette entries are left unused.
Many indexed color display devices do not reach the 24-bit limit for the full RGB palette. The VGA for IBM PC compatibles, for example, only provides an 18-bit RGB palette with 262,144 different possible colors in both 16- and 256- indexed color graphic modes.
Some image editing software allows gamma correction to be applied to a palette for indexed color image files. In general, to apply a gamma correction directly to the color map is bad practice, due to the original RGB color values being lost. It is better to apply the gamma correction with the display hardware (most modern display adapters support this feature), or as an active intermediate step of the rendering software through color management, which preserves the original color values. Only when the indexed color images are intended for systems that lack any kind of color calibration, and they are not intended to be cross-platform, gamma correction may be applied to the color table itself.
Read more about this topic: Indexed Color