Wikipedia Wrote:The original Game Boy uses a monochrome 4-shades palette. Due to the fact that the non-backlighted LCD display background is greenish, this results in a green-scale graphic display, as it is shown in the simulated image (at Game Boy display resolution), below.
As EpicEbilninja said, most sprites would be restricted to 3 since the fourth is needed for transparency, like the Pokemon R/B overworld sprites. However, if you look closely you'll notice that the trainer sprites actually have 4. I'm not sure (I haven't looked into this stuff), but I would assume that they can do this by utilising the background colour. They can use the fourth colour, which is still treated as transparent by the engine, but because there's nothing behind them, you see it as an extra colour.
That's how I think it works, anyway. Hope that makes sense!