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How the fade in and out jumps between colors instead of smooth fade? Do you do something rounding the color value to each integer?

Not quite sure what you mean. Screen transition fades have a speed setting.

When you do a fade transition in modern graphics its a gradual process, i.e. it starts alpha from 0 and go to 1 to fully opaque.

But what your game has and other 8bit systems have had is its a discreet provess, meaning alpha jumps for example from 1 to 0.75 then 0.5 and so on.

I want to know do you manually do the fade in steps or you enforce something that causes this to happen automatically and perhaps other aspects to feel 8bit as well.

There are people who better understand retro FX than me. - This video should give you a better clue to what is going on: 

But, you have think about it differently. The NES and GB/GBC doesn't "fade" alpha, but shifts the color palettes and lowers brightness of the BG and Sprites. Along with the slower, tick based, processers of the systems is what create that unique NES "Fade".

In retro development, everything is done manually. But I use GBStudio which has the fade built in.

In modern development, you will probably have to recreate this manually as well. Shifting each color closer to black from .25 to .5 seconds each "tick". There probably a billions ways to do this. Mostly likely, someone has already made a shader that can mimic it.  

Thanks!