TLDR:

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Optimized Median Cut
Less accurate (5 bit), Better weighting color importance.

Optimized Octree
More accurate (8 bit), Worse weighting color importance.

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Error Diffusion
Reduces colors by a mmethond similar to "nearest Color", except it spreads out the inaccuracy in representing a pixel's color to the surrounding pixels. This method produces a natural looking image.

Nearest Color
Reduces colors by replacing a pixel's original color with the nearest matching color in the newly generated palette. This method roduces a high-contrast image.

Ordered Dither
Images may appear to be composed of cross-hatches and dots.

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"Nearest" significantly smaller file size than "Error".

"Octree" quality slightly better than "Median".

"Ordered" is shitty quality, small file size.

"Octree" & "Nearest" is best.

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From Jasc Animation Shop 3.11 HLP:

Use the Colors tab as described below.

· In the “Number of Colors” drop down box, choose the number of colors you want available in the animation. The current number of colors is displayed to the right of the drop down box. Note that one color number is reserved to utilize the Optimization Wizard’s ability to handle transparency; this is why the options are “3 colors” instead of 4, “7 colors” instead of 8, etc.

In the “Create palette by” area:

· Choose “Optimized Octree” to use an 8-bits per channel palette. This palette is not as good at weighting color importance as the Optimized Median Cut palette.

· Choose “Optimized Median Cut” to use a palette that uses occurrence of colors as weighting, and ranks these colors accordingly. It is accurate only to 5-bits per channel.

· Choose “Standard palette” to use a generic palette that contains a balanced number of colors.

· Choose “Browser palette” to a pre-defined, web-safe palette.

· Choose “Custom palette” and then click the Browse button to use a custom palette not listed here.

In the “Reduce colors by” area:

· Choose “Ordered Dithering” to reduce colors by adjusting adjacent pixels of different colors to give the illusion of a third color. It uses set patterns based on a known palette to adjust the pixels. This method can result in distinct patterns of light and dark areas.

· Choose “Error Diffusion” to reduce colors by a method similar to “Nearest color”, except that it spreads out the inaccuracy in representing a pixel’s color to the surrounding pixels. When it replaces a color, the inaccuracy, or “error,” is carried to the next pixel, where the error is added to the color before selecting the nearest color. This process is repeated for every pixel in the image.

· Choose “Nearest Color” to reduce colors by replacing a pixel’s original color with the nearest matching color in the newly generated palette.

 From Paint Shop Pro 8 User Guide (http://www.corel.com/6763/psp_downloads/pub/psp8gid.pdf):

About Palette Options

When you decrease an image’s color depth, you must select a palette
option. Depending upon the color depth you select, two or three of
these methods are available:

Optimized Median Cut Measures and ranks each color by how
frequently it occurs in the image, then uses the most frequently
occurring colors to determine the new palette. Even if your image
contains fewer colors than the palette that is generated, this method
may not represent each color exactly. The method, therefore, is not
as accurate as the Optimized Octree method, but it is better at
weighting color importance.

Optimized Octree Creates an eight-level “tree” with eight branching
nodes totaling 256 individual “leaves” or colors to determine the
new palette. This method attempts to reproduce each color in the
original image, so if your image contains fewer colors than the
palette that is generated, every color in the image is represented.
This method is faster and more accurate than Optimized Median Cut,
but it is not as good at weighting color importance.

Windows Changes each pixel’s color to the nearest color in the
Windows palette.

Standard/Web-Safe Palette Changes each pixel’s color to the nearest
color in the standard Web-safe palette. Use this method to create
images for the Web that can be viewed without color distortion on
most monitors.

About Color Reduction Methods

When you decrease an image’s color depth, you must select a color
reduction method. Depending upon the color depth you select, two
or three of these methods are available:

Nearest Color Replaces the original color of a pixel with the color in
the newly generated palette that is closest to the original RGB value.
This method eliminates dithering and produces a high-contrast
image. Simple graphics may look better with this method.

Error Diffusion Replaces the original color of a pixel with the most
similar color in the palette, but spreads the discrepancy between the
original and new color to the surrounding pixels. As it replaces a
color (working from the top left to the bottom right of the image), it
adds the “error,” or discrepancy to the next pixel, before selecting
the most similar color. This method produces a natural looking
image and often works best for photographs or complex graphics.

Ordered Dither Adjusts adjacent pixels so that two colors give the
illusion of a third color and intermingles pixels to produce patterns
based on a known palette. Use this method to give the image the
appearance of containing more colors than it actually does. Images
may appear to be composed of cross-hatches and dots and may have
distinct patterns of light and dark areas. 


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