In high resolution mode it did, which is the 320x200. You could only have a single foreground color and a background color.

In the low resolution 160x200 mode you could have one background color and three foreground colors in a 4x8 square.

I was a computer artist back then, published in several Commodore magazines, and the first thing I had to decide when painting a scene was if I could get away with the 320x200 mode, or settle for 160x200 because I needed more colors closer together.