First Make a sprite sheet of every part of the body you want to have color separated.
A document with a few shots of his pants. Render the pants at a lighter tone, with a color like blue. Straight black will result in less shades to work with later on.
Another document with Skin and hair
Another with blood colors
Another with bone colors
etc. What ever you need to have color separated.
Decide how many color swatches you want to have for each part. I give the skin tones the most and other large areas second most.
Convert the image to indexed color, transparency and set the number of colors you wanted for it + 1. One of these palettes will need to keep the transparent color, otherwise it's just needed to remove the antialiasing.
Transparent color will end up being, 255,0,255 or 0,255,0. It doesn't have to be that, but it's the usual choice.
OK so now all these separate files should be indexcolor and have the colors limited to what you need, in order to fit them all in a single 256 palette.
Save all of them separately as .bmp
Open Fighter Factory, the latest version right now is the 2012 release.
click on the sprite editor icon, it looks like a polaroid photograph.
The sprite editor has a palettes window on the side. Click on the painters palette icon "Advanced Palette Editor".
In the Advanced Palette Editor, click on "Image or Palette" It's the palette window on the right side. you have to check "Character" or "Image or Palette" depending on what side you want to work with.
Right now you need to load the sprite sheets, so with the "Image or Palette" selected, click the Load image Icon, Looks like a Red Folder.
A prompt will show up asking if you want to load the palette, Click Yes.
On the right side palette where the new color swatches came up, select them all. Click on the upper left one, hold shift and click on the last one.
You have two options now, you can make a selection by hand on the Left side palette, or you can transfer the selection via the Icon between the two palettes. It's an arrow with a selection marque in front of it. Do as you wish here.
Now click the "Send selected colors to the Left Palette" Icon. It's an arrow with three dots in front of it.
There, you have one section of the master palette in place. Do the same with the rest of the sprite sheets.
Load image, make the selection, transfer the colors...
Make sure you put the masking color on the lower right corner of the palette, R,G,B = 255,0,255.
That should be it, now select the "Character" option at the top.
Click the Save Icon = Blue floppy disc. "Save current Palette to a new file"
Call it Master Palette or Masking palette, done.