I think that effect (of having a large static background with a few small sprite overlays providing motion) was largely orthogonal to color cycling.
They're talking about the more general effect of a complete hand-drawn background with mobile sprites/items layered on top (usually with somewhat different color palette &al, so you'd "see the seams" so to speak between what would or had moved and the actual immoveable background)
http://www.effectgames.com/effect/article-Old_School_Color_C...