From Data Realms Wiki
The palette is a set of colours that the game can render in; if a sprite uses colours that are not in the palette, it will not display correctly.
If you have not used the colours that are in the palette, a simple solution is to just paste your sprite into the palette; this will make it appear correctly in CC, and may crash the game. After saving your sprite in the CC palette, the colours may need some tinkering. To avoid this, you could get a graphics program that incorporates the palette into a colour swatch, such as MS paint, Seashore, Gimp, or Photoshop. That way, you can see all the colours at your disposal.
The colour with the RGB values R = 255 G = 0 B = 255 (the top leftmost colour on the palette), is a shade of pink that is interpreted by Cortex Command as transparent, with the exception of the MAT files for terrain objects.
Another problem is the bit depth; 256 colour bitmaps (or 8-bit) is the standard bit depth for regular CC sprites such as attachables, not using this will result in crashing. The exceptions to this are; scenes and glows, which use a 24-bit bitmap, so that they can incorporate a wider range of colours than what is present in the palette.
For further information on colour depth please visit the wikipedia article.
To conveniently draw sprites under a certain palette, a spriter will want to import a .aco image into his palette folder. .gif and .bmp images will not be accepted by the image program you are using. To download .aco cortex command palletes, go to  on the cortex command forum, gernerously provided by the user Jcgrey2
Saving an image in palette
A frustrating problem people often have when trying to make a sprite is that, although they use the correct pallete colors, they do not save the palette as the correct sort of image. Normal .bmp RGB images, while loadable in the game, will not appear as they were designed. To make an image that the game will read correctly, after making the sprite, select the option image on the imaging program you are using, then click mode on the drop-down bar that appears. If you have made the sprite completely out of scratch (Not edited an existing sprite) then the sprite you made will probably be saved as a traditional RGB image. Convert it to an Indexed image and select the cortex command palette as the palette to index it under. Now your image is a viable sprite.