Note: This CVar is linked to gxColorBits. If you change this, gxColorBits should be the same setting.

This CVar controls how many unique colors are available in an image's color palette in terms of the number of 0's and 1's, or "bits," which are used to specify each color. This does not mean that the image necessarily uses all of these colors, but that it can instead specify colors with that level of precision. For a grayscale image, the bit depth quantifies how many unique shades are available. Images with higher bit depths can encode more shades or colors since there are more combinations of 0's and 1's available.

Default Setting

24

Possible Settings

16 

16-bit color - 65536 colors - XGA, High Color

24 

24-bit color - 16777216 colors - SVGA, True Color

32 

32-bit color - 24-bit color + Transparency

Changing this setting

This CVar requires a UI reload. In-game, type the following

/console gxDepthBits setting
/console gxColorBits setting
/console gxRestart

Alternatively, you can exit wow, open the Config.wtf file, and add the following line:

SET gxDepthBits setting
SET gxColorBits setting

Notes on 16-bit setting

As of 3.1, 16-bit is no longer a valid setting in the Interface dropdown menu^[1]. However, if you still need to use this setting due to a very low-end graphics card, you can via the in-game macro:

/console gxDepthBits 16
/console gxColorBits 16
/console gxRestart

Be aware that this setting does NOT save when you shut down the game, and you'll have to run these lines every time you log in.

Patches

Patch 3.1.0 (14-Apr-2009): 16 bit color no longer in the Interface menu - can still manually set it however. 
Patch 1.6.0 (12-Jul-2005): Added. 

References