A palette is a color table used when rendering 8-bit graphics, usually containing 256 colors. Except for the PICTURE and FLICS XLD archives, all graphics displayed in the game are stored without any attached palette, which is instead taken from the PALETTE XLD archive and concatenated with the global palette.
The local palette consists of 192 colors, which are complemented by 64 global colors. Instead of storing individual colors in their raw data, images in the game store the color indices, which are taken from the currently used palette when actually rendering the images. This means that some slightly different environments can use the same set of images, and some simple tricks can be performed to simulate things like day/night cycle, partial transparency, and animations.
The layout of colors in the individual palettes depends on the environment they are used in.
The global palette consists of 64 colors loaded from PALETTE.000 and is used for the interface as well as images or parts thereof that are bright and unaffected by night or other palette changes.
Palettes used in 2D environments have the majority of colors specific for the environment, except for indices 96 - 175 which are used for party characters.
Palettes used in 3D environments don't have to follow any particular layout since no images are shared amongst them. Some color ranges are cycled through to create animations.
2D world environments' palettes use a different layout from all other palettes, with many color ranges shared across them.
Special palettes are used for every combat background. The first 80 colors are specific for the background and the rest are used by monsters and effects. Data from TRANSTB is used to simulate various transparency effects.