(http://i.imgur.com/8SdZA3R.png)
http://danfessler.com/blog/hd-index-painting-in-photoshop
This seems really useful, especially for backgrounds.
I've got it working in CS5. It takes a little figuring out if you're not used to using layer styles, but it's really fun to play around with various photoshop tools and watch it rendered in a genuinely low-res style.
Just tried it out, it's pretty cool (at first I thought it was just the old and well-known 'reduce colors to an indexed palette' trick) but that guy sucks at explaining haha. Took me half an hour to set it up and get it right even with a lot of Photoshop experience!
The obvious issue with it is that you can really only draw in one color gradient. If you want to change to a completely different hue, you gotta make a new ramp with setup for it.
I haven't seen any links to this, and think some here will be interested in the technique: HD Index Painting in Photoshop (http://danfessler.com/blog/hd-index-painting-in-photoshop).
EDIT: Well damn, I missed Trapezoid's post. Thanks for merging, Snarky!
This looks really cool. I'd definitely be interested in trying this and seeing how to recreate the technique for GIMP.