
Early arcade games used CRTs (Cathode Ray Tubes – think old TVs before flat screens). Colour CRTs were quite expensive, so early games used black-and-white screens. It was also expensive to manufacture chips and circuits that output colour, so this was another way to save money.
This use of black-and-white CRTs is why, if you ever saw the original Pong from Atari in 1972, the screen looked like this:

Though many people think of Pong as being the first arcade game, it actually wasn’t. The first was a game called Computer Space in 1971. It featured a beautifully designed cabinet, the likes of which has rarely been seen since. I had the pleasure of seeing an actual machine in Japan on a previous trip, and if you’ve ever seen the movie Soylent Green (1973) you can see the game being played in an early scene – the first appearance of a video game in a movie.

And yes, as you might expect, it is also black-and-white:

Space Invaders
The internet claims that Space Invaders (1978) was the first arcade game to use cellophane to simulate colours in a game. I’m not sure this is accurate, as there were earlier arcade games that used colour overlays of some sort – for example, Lazer Command (1976). However, perhaps those did not actually use “cellophane” for the overlay.
Regardless, most people remember Space Invaders having colour, and initially this was due to cellophane placed over the screen. For example, this is what Space Invaders actually looked like in its first release:

However, most people recall Space Invaders with the more iconic colour scheme:

This effect was achieved by physically adding a red piece of cellophane and two pieces of green cellophane to the screen itself, as shown here in a photo of the reflected CRT without a working image:

(Space Invaders did far more than just colour overlays. I’ll talk about that in a future article though.)
Send in the Clones
All the Space Invaders clones quickly jumped on the bandwagon, using different cellophane colours in more elaborate ways.

Space Invaders also had cocktail versions (sit-down cabinets) that used different colour overlays than the original.
Midway continued the tradition with Space Invaders II (1980) (an arcade game almost no one remembers or has played), and Space Invaders Deluxe (1980), the real sequel to Space Invaders. Space Invaders Deluxe used a black-and-white CRT to save money, although versions of the code could produce colour (and a colour CRT was used in Japan, where it was released as Space Invaders Part II). You can see the overlay here on one of these machines:

This overlay had a lot more colour, resulting in a more vibrant display, though obviously that overlay messed up the title screen somewhat:

Other Examples
Just about every black-and-white game after this used cellophane to add colour. Here’s a selection you can view (use the arrows to advance or let it autoplay).
Extreme Colourisation
An impressive use of colourisation can be seen in the game Gee Bee (1978). In this case, the cellophane appeared to have been hand-cut on an angle in certain parts of the screen overlay.

This resulted in a wide range of colours and a nice effect that was rarely seen in other machines.

Most arcade game manufacturers did not put much effort in positioning cellophane precisely, as it was difficult to do. Cellophane also tended to peel off, and in some cases arcade operators swapped out games but reused the same screen, leading to bizarre mismatched colour overlays.
Playing These Games Today
Eventually everything moved to colour CRTs, and today, to colour LCDs. However, all these old games are still playable via emulation.
In fact, I personally added code to a version of MAME to correct the overlays on all of the above-mentioned arcade games; painstakingly going through flyers and old footage of actual machines to make overlays as accurate as possible. This included adding the ability to use diagonal cuts in overlays for Gee Bee, and handling different overlays for cocktail mode versus upright mode.
My choice to update MAME 2003-Plus rather than the most current version of MAME is based on the fact that MAME 2003-Plus works on lower-spec hardware, such as low-end Raspberry Pis. As a result, I believe this version of MAME has the most arcade-accurate overlays available. Feel free to download a copy and try it out for yourself. Downloading RetroArch is a good place to start if you are looking to emulate arcade games on your computer; it’s a fun and rewarding experience.
I never knew this. I thought the color in the game titles was a software choice, not a hardware limitation