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The most effective solution to the problem of limited color display and low resolution after installing a new video card is to download and install the latest driver from the video card manufacturer's website. This situation typically arises because Windows is using a generic driver that does not fully support the capabilities of the new hardware, which often results in restricted display features like a limited color palette and reduced screen resolution.

Drivers are essential software components that allow the operating system to communicate effectively with hardware. Manufacturers frequently release specific drivers tailored to their hardware, which can optimize performance, fix bugs, and unlock additional features of the video card. By installing the latest driver, you enable the full capabilities of the video card, resolving issues like the 16-color display and low resolution.

Rebooting the computer, while a common first step in troubleshooting, will not address the underlying driver issue if the correct software is not installed. Changing the resolution in display settings might not be possible because the system lacks the necessary drivers to allow for higher resolutions or color depths. Lastly, replacing the video card is unnecessary given that the hardware is likely functional but requires proper driver support to perform as intended.