The best lossless settings? It will always depend on the image at hand. You need to optimize with your image in mind. There's no best.
For GIF and PNG? Indexed color mode is indexed color mode. Format doesn't matter. PNG supports full-color too, but that's not of concern here.
Of course colors disappear when you go from 256 to 32. You just nixed 224 colors. The image no longer uses them. Yes, it affects the image, altering colors. You can also convert to indexed mode by going to Image > Mode > Indexed Color.