The palette files contain the 256 colors that TA uses to display every aspect of the game. This is something that reduces the graphics quality of the game, but is a restriction that cannot be overcome. It was initially implemented to increase performance, but with modern computers there really is no need for this restriction. Most modern games and programs use at least 16 million colors.
A good palette file for TA unit building can be found here. It is typically used to convert build pictures, textures, features, and map tilesets over to the correct color depth for usage in-game.