The effect is clever. But the root of the effect has been used in some PCE games before (shadowing). Why this effect was only used to this level in all of the PCE's life, is beyond me. It's a pretty simple effect; you reserve a chunk of subpalettes (cause the PCE has plenty to spare), then apply the different subpalettes to the tilemap in whatever way you want. In the case of the ship, it's a circle with a few fade off rings. IIRC the game uses six 16color subpalettes for that area. Well, that's how many are reserved for the effect. It might not use all six of them, haven't looked at it in a while. But yeah, simple as that. The effect can be taken to much better high extremes, but no game does. Pitty.
Isn't this basically a shaded version of what games do when there is a spotlight in absolute darkness, I'm thinking Ys SMS (and Turbo) and Dragon Warrior, where the tiles surrounding the lit area are just replaced with solid black ones (or really the inverse)?
If that effect was using as many as 6 subpalettes, then it's yet another effect that utilizes the strength of the PCE. Considering that the Genesis only has 4 palettes of color to go round for tiles and the SNES 8. Not that it couldn't be done on either effectively, but perhaps not as perfect in such a detailed game.