Kasumi, that's mostly right. I guess the way to say it is that an N-bit cpu is designed to mostly manipulate N-bit values. Like you said you can handle bigger values but it's harder and slower (eg. manipulating 64-bit values on a 32-bit processor is slower than on a 64-bit processor)
Wikipedia says:Eight-bit CPUs use an 8-bit data bus and can therefore access 8 bits of data in a single machine instruction. The address bus is typically a double octet wide (i.e. 16-bit), due to practical and economical considerations. This implies a direct address space of only 64 KB on most 8-bit processors.
@XLR8ED: Rendering is often done by a separate processor, so it's not easy to say 'Right, that's an 8-bit machine, so it can't have that many colors'. If you look at, for example, the
MSX2, it had a 256-color mode, and the 2+ had HAM-like 19k/12k-color modes, plus sprites, but the CPU was just an 8bit Z80.
BTW, Wikipedia has a 'list of videogame consoles palettes' page which gives some of the info you want.