In the current version only about 20 color palettes are supported but that will be closer to 90-100 in the next. The colors for all the maps, towns, dungeons, castles, portraits, cut-scenes, will be editable. A couple sprites and the battles will the only things remaining.
A little background - the Sega Genesis displays 4 layers on the screen at a time. Each of those layers is composed of 16 colors for a total of 64 possible colors on screen. In Phantasy Star III the developers created ~415 color palettes (although I'm starting to doubt that all are used).
Here are a few totally random notes about how the color palettes are used in Phantasy Star III and what questions they raise:
- -Maia's dress color will always match the main character (something that was already found due to the escapipe bug in Nial's quest)
-Most of the cutscenes only use 2 out of 4 available palettes
-Dark Force's hands use a different palette than his body
-The Orakian and Layan castles use different palettes which is a nice detail they thought of
-Even though LaShute and Skyhaven look the same they use different palette entries meaning they could be different colors, maybe that was planned at one point?
-The most interesting one to me: Landen, Elysium, Aquatica, Terminus all share the same palettes but Draconia uses a completely different entry that happens to contain the same colors. So same question as the last, did they plan to make Draconia have a different climate than the other green domes?
-Wren and Mieu's portraits are crammed into the same palette so they're limited to 8 colors each. Every other character portrait has their own distinct palette including separate ones for the 2nd and 3rd generation Layas.
-If you want to change the color of the shop dialogs you have to do it in about 10 places because each shop loads a different palette for the dialog (even though they're all the same colors).