To clarify by example, consider this picture by ptoing[0]. It employs various dithering techniques and AA in the right places to achieve amazing results with a fixed palette on an 8-bit system. The individual pixels can still be discerned but the dithering adds both depth and texture and the AA adds a sense of smoothness.

[0] https://csdb.dk/release/viewpic.php?id=171065&zoom=1