Palette swapping is also used to produce animation effects in old
256 color computer games and
Windows 9x.
Basically, in the days of 386s and ISA video cards, video bandwidth was very limited. So limited that it was difficult to impossible to redraw a 640x480 screen quickly enough for animation. By drawing the graphics and manipulating the palette cleverly, it was possible to create simple animations with very little processor and bus usage.
In computer terms, a 256 color bitmap is actually stored in video ram as byte-long indexes into a color palette. Using the color palette, the video card turns the indexes into RGB color which gets sent to the monitor. The upshot of which is, by changing the color of an entry in the palette (a few bytes of information), you change the color of every pixel on the screen with that particular index (thousands and thousands of bytes).
One of the finest examples of palette swapping animation that I've seen is Sim City 2000. All the blinking city lights, moving cars, and water animations are done by palette manipulations. For example, one set of pixels will turn grey while another set turns black, giving the appearance that cars are moving along the streets.
Another use of palette swapping is in the Windows 9x startup screen. The pixels along the bottom of the screen are not actually changing... Windows is simply cycling the colors in the palette indexes associated with those pixels so that one set of pixels turns slightly darker blue while another set turns slightly lighter blue.
Palette swapping can also be seen in fade-in/fade-outs of older games and in Fractint's beautiful color cycling mode.