This upgraded color is made possible by the fact that it's running the original game through an emulator -- if I understand things correctly. I have to admit, I'm still guessing at the exact details of how this works, but ...
The CFC colorization is actually injecting new assets on the fly, BEFORE the compositing process for display. Things like dynamic text and scores still work because those are left as is and rendered (layered in, processed with masking and such) the same way they normally would but combined with the new assets instead of the old ones.
So just as an example, the dragon breathing fire in front of the castle & princess - that's multiple parts.
- The castle layer
castle.png
- The dragon layer
dragon.png
- A mask for revealing the text layer
mask.png
- The text layer itself
- And the maiden in the window (which I didn't dig around for)
The CGC process can, apparently, replace those items on the fly before they're rendered into the final image - which is a much more straight forward approach than what colorDMD does (recognizing frames after the fact and applying a color filter).
And since I have them from digging around - another example - the beer mug clank in front of the burning castle:
- beer mugs
beer.png
- mask (to keep the black parts of the beer layer from being transparent)
beer_mask.png
- castle
whole_castle.png
And I'm not sure how the stuff is being re-drawn, but individual frames in the original don't actually re-draw the whole scene every time, for example on the castle, only the bits with fire change in subsequent frames, so it may be that the redrawn bits are using the same setup:
fire2.png
fire1.png