I haven’t posted in a while but I recently made a quick tutorial that you can watch as a gif!

All you essentially have to do is downscale your texture and then set the colour mode to indexed colour to really restrict the palette. I chose 16 colours because I noticed once that Silent Hill 1 textures had 15 or 16 colours for their larger environment texture atlases.

“To specify PS1 textures were typically 128×128 at 8 bit (256 colors) or 256×256 at 4 bit (16 colors) and that’s my target range”
– user jaybee[ricardioheartguy] from the Haunted PS1 Discord

If you want, you can also save it (for web) as a .gif so that the colour palette is exact and it should be a smaller file size than a .png for instance!