Understanding how TFT driver operates (ILI9486)
The display has memory for the RGB values for each pixel and that is called the frame buffer, and you basically display an image on the screen by first telling the chip which address (pixel) you begin writing from and then you send the required amount of data (e.g. whole screen) in any of the available pixel formats you want to write it.
The display is set to 8-bit bus so that is what you must work with when communicating with the display. Internally the pixel data in memory has 18 bits per pixel, 6 bits for each component of red, green and blue values. This means that you can set the RGB values between 0 and 63 for each component, where 0 is turned off and 63 is fully on. You are correct that setting all bits off for all RGB bits is black, and all bits on for all RGB bits is white.
The display controller provides you with several modes in which you can write the 18-bit pixel data, but as it is already wired for 8-bit operarion only two modes make sense.
One of the commands allows to write the three color components as 3 bytes of 24-bit data, with each red, green and blue in their own bytes, and only 18 bits of the 24 bits sent are used by the display. As the display can use only 6 bits from the 8 bits, and it uses the most significant bits, the format is compatible with 24 bits per pixel data, the least significant bits are unused.
The command sequence you show in your post is for writing pixel data in the mode 16-bit 565 mode, where a data of single pixel can be sent with only 2 bytes, but it can only send 5 bits of the red and blue but internally the 16-bit 565 format is converted to the 18-bit format, so you have less color bits to send which is faster and saves memory space on your MCU.
What the diagram does not show is how to set the address (i.e. starting from which pixel) where to write on screen.