How do low poly static meshes sections specific colours from a colour pallet texture?

I have purchased a few low poly asset packs and they all seem to use a colour pallet texture passed into a material then applied to the mesh. I’ve would like to change the colour on certain parts of the asset but am lost how the mesh is getting the colour selection?

From searching online I thought this may be UV mapping but unsure if this is a red herring?

You can view the UVs of a model in the static mesh editor. You can also offset the UVs within the material editor by taking a texture coordinate node and adding a to it using numbers less than 1.