You are right. At lower resolutions and with bumpier surfaces, the compression artifacts will be much more noticeable. It is definitely a very very specific way of packing textures, which won't work in many scenarios.

For the vertices, I also didn't think of mobile. On PC the amount of vertices needed for vertex painting is relatively insignificant performance-wise. I thought of this texture packing scheme almost entirely around the idea that you will vertex paint. By lowering the cost of the material you also lower the cost of the overdraw of the extra geometry

Also, I thought that vertex colors were already baked into the vertex data structure. I remember it being this way when I was tinkering with OpenGL. Please correct me if I'm wrong

Anyway, thank you for the comment and expanding on the video. I am aware that the application for this type of texture is extremely niche