CGA wasn't natively capable of displaying 16 distinct colors in its higher-resolution modes. KQ1 - and a lot of games in that era - did 16 colors on CGA's composite mode by actually exploiting the peculiarities of NTSC video to generate color artifacts on the screen. If you were to view the same video on an RGB monitor, what you'd actually see would usually be a monochrome screen filled with varying patterns of narrow horizontal and vertical stripes.

See: http://en.wikipedia.org/wiki/Color_Graphics_Adapter#Special_...