I use Floyd-Steinberg dithering, and if you look at the "More images" section you can see it does a reasonable job at representing colors. Also worth nothing that 2 of those 7 colors are black & white, so questionable naming perhaps.
I'm pretty sure real production use cases of these screens don't tend to use dithering though, focusing on contrast and readability.
The naming is a hard problem - black/white/orange and black/white/red screens are commonly called 3-color screens, to distinguish them from normal black/white screens. Calling them 1-color screens would be an awful choice of name, but "7-color screens" is a name consistent with the "3-color screens" name and calling them 5-color would be horribly confusing (especially since current 5-color would become 3-color).
Also, black and white are their own specific primary colors, they're not made out of a combination of other colors, so it's rather appropriate to call them colors in that context.
I'm pretty sure real production use cases of these screens don't tend to use dithering though, focusing on contrast and readability.