Has nothing to do with being a n00b. (I hate this "coolwriting" anyway)
Back in those days when the IBM PC and the IBM PCjr came out, most monitors had a fixed Hz rate and monochrome displays still had a good market share. There were even monochrome graphics adaptors. Back then writing software was chopping wood with an axe compared to todays application building tools, which are like burning the whole forest down.
You had to deal with very limited hardware. Most PCJr came out with as much as 64 KB of memory, the better models shipped with 128 KB. A Harddrive was not standard to have.
For a monochrome display it was quite a demand to display more than 16 shades of grey. In fact, you didn't need more because you could simulate more colors with dithering and most application software didn't want more.
The PC was a working machine, not a gaming computer (the PCjr is another story)
Now more colors need more memory to store and more processor load to handle.
A 320*200*4 screen needs 16 k of memory. It needs 64.000 times the operation "make color X, pixel counter +1" which is all done through the humble CPU which should also run the application code, the OS, the BIOS calls, drivers... you get it.
Now with 16 colors, you already need a half byte (nibble, 4 bit) to store just one pixel in display memory (and on disk). A whole 320*200 screen would take up 32k memory. In 256 color palette mode, the very same screen takes 64 k, 1 byte per pixel. For 256 colors, you needed a decent monitor. Now you could say why not make a 320*200*32bit capability which would only take up 64k*4=256 KB.
Well, the typical floppy drive of the time could read 360 KB diskettes. The PC was no gaming machine, higher resolution was considered more important than fancy colors.
Just keep asking questions, there's a good deal of graphics history that I never really got either. Just think about the PCjr/tandy mode. Just think about VESA history.
What's MCGA, anyway?