Palletizing is one well-known form of vector quantization. It uses values of single texels (1 by 1 blocks) to create the lookup table of colors. Palletized texture image quality suffers when a large variety of colors are used. A palletized image is limited to 256 colors for the whole image. Palletized textures also require that a new palette be downloaded for each new texture (the palette being equivalent to a code book).   

Analysis

Palletizing has low compression ratio to satisfy TC requirements, it's compression ratio is about 3x depending on image color depth. Decompresion and texel access is very simple. If palette is downloaded to video memory only one RAM acces is needed. 

Palettizing can handle both sharp edges and color graduations reasonably well. However the limited amount of available colors (256) can give problems with color graduations. It can even give general color problems with bigger texture maps (too many colors needed). Texture images with smooth gradients will even look better with Block Decomposition than with Palletizing. 

We think that Palletizing can't be a good choise for Texture Compression, but this technique could be combined with most other TC methods to provide an additional compression.