My understanding is it ensures proper contrast for all cells regardless of the type of fg/bg color (palette, 8 bit, 24 bit). So if a program uses 24 bit fg color and a bg from palette (or a default one) it would still preserve the contrast. (haven’t tested, just my impression from reading the docs)
I've never actually made a palette, but it just doesn't seem practical to me to expect theme creators to always find a contrast-safe 16 colour palettes. I would imagine that it even seriously restricts the range of themes that can be made. I can imagine that such a thing is possible for smaller palettes like say 3 colours though, but then that's not actually useful for UIs.
I think the fact is that small palettes come from the days of lower resources, not from efficient program design.
That’s my point though. People abuse the other palettes.
This is why we can’t have nice things.