Color cycling, also known as palette shifting, is a technique used in computer graphics in which colors are changed in order to give the impression of animation. This technique was mainly used in early computer games, as storing one image and changing its palette required less memory and processor power than storing the animation as several frames.
The Amiga Boing Ball cycled the ball's checkerboard pattern between red and white to create the illusion of the ball rotating.
SimCity 2000 made extensive use of this technique: every building with animation had its animation provided by color cycling. This was used to provide effects such as blinking lights, cars moving on roads, and even four frames of animation displaying on a tiny movie screen in a drive-in theater.
Many adventure games used color cycling to simulate moving water, lava and similar effects.
Old School Color Cycling with HTML5 This site is extremely interesting because it displays the palette being modified in real time alongside the image. One can see that the image is not modified in any way, only a few dozens of colors in the palette.