Especially (cheap) screens used with embedded devices do not provide 24-bit color-depth. Moreover, storing and/or transmitting 3 bytes per pixel consumes 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. This asymmetric allocation is due to the human eye being more sensitive to green, and also allows the values to be packed neatly into 2 bytes.

Note that since we have fewer bits available, we can represent fewer colors. While RGB888 provides 2^24 = 16,777,216 colors, RGB565 only provides 2^16 = 65,536 colors.