What determines the color depth of an image?
The bits per pixel of the image determines the color depth.
This format is limited to only 256 colors. Photographs contain many more colors, so dithering to 256 will usually make them look horrible.
The increased resolution will allow for finer detail. This will result in a larger file size and consequently slower downloads.
Vector based images are constructed from less data and result in a smaller file size than raster images. Vector images also scale very well when zoomed, without losing quality.
A bitonal image only uses two colors -- a foreground color and a background color. Only one bit per pixel is used. Greyscale images contain more colors than just black and white. Any number of grey shades of color may be used. For instance, a greyscale GIF file would contain 256 different shades of grey, including black and white.