The theory behind digital colors:

Digital images consist out of pixels (big news huh?). If we want to store or transmit an image, we have to provide information about each individual pixel. For monochrome images this is simply a single bit of information, where a prominent example are images on LCD displays such as those in old GameBoys. This however brings the limitation that we can only indicate if a pixel is ON or OFF (e.g. black or white), but nothing else. If we want to have colored pictures, we also need information about the color. The color depth defines how many bits are used to represent a color. The more bits (information), the more colors we can display. There are different ways on how to represent a color but virtually all displays use RGB, where a color is represented by its Red Green and Blue components (you might have heard something about it in school, a long long time ago, if not: primary colors).

RGB888

A common representation of color information is the RGB888 (24 bit/3 byte) format. It defines that we have 8 bits/1 byte of information for each primary color (Red, Green, Blue) which, if added, result in the desired color. Usually the color code is represented in hexadecimal digits (because 1 byte results in exactly 2 digits).

An example with common notations for the color yellow (R=255,G=255,B=0) can be seen below. I highlighted the color each digit represents.

#ffff00            0xffff00

In the table below you can see how RGB888 is stored in memory.
In the first row I indicate the bit number and in the second row I indicate which color this bit represents and how "significant" it is. The bits on the left have a higher significance and hence have a stronger impact on the color. If the bits on the left have the highest significance, then its called MSB (most signficant bit) first. This is a common convention, though there are also others (LSB first). (read more about bit numbering)

RGB565

Especially (cheap) screens used with embedded devices do not provide 24 bit color-depth. Moreover, storing and/or transmitting 3 bytes per pixel is consuming quite some memory and creates latency. RGB565 requires only 16 (5+6+5) bits/2 bytes and is commonly used with embedded screens. It provides 5 bits for Red and Blue and 6 bits for Green. Providing 5 bits for 2 colors and 6 bits for another seems asymmetric but storing and transmitting something which cannot nicely be packed in bytes would be complicated. Note that since we have less bits (information) available, we can represent less colors. While RGB888  provides 2^24=16 777 216 colors, RGB565 only provides 2^16=65 536 colors.