Hi,
yes, the story is exactly as you described it. In case that Embedded Wizard Studio does the color reduction, the advantage is the dithering. Otherwise, the lower bits are just ignored.
In case that a display is able to show (or connected with) 18bits - it is worth to consider to use RGB565 as framebuffer format instead of RGB888. This requires less memory, less memory bandwidth and improves the graphics performance.
Best regards,
Manfred.