Here's my interpretation. I'm sure someone will correct me where i'm wrong:
-the color display panel only supports 18 bit color in reality
-it's easier to work with byte-sized data (16 bits = 2 bytes; 18 bits not so much)
-therefore the frame buffer (memory that stores image of what's on screen) is set to 16 bits
-Maemo 5 device called N900 displays 16 bit color

In theory, it could support 18 bit color, but in practice i'm guessing it's not worth it. Increasing the framebuffer to 24 bit would increase by 50% the size of it and the bandwidth and processing requirements for handling it, and then it would only get 2 bits actual increase, anyway.