Looks like iTerm2 supports this already. Where can I read more about the format and the use cases?
I’m already thinking of terminal based graphical RPG game…
There are libraries in most languages to output sixel graphics, however libsixel (https://saitoha.github.io/libsixel/) is a popular one written in C. There are some interesting use-cases shown on that page. These will abstract away the escape sequences and allow you to pass them a raw bitmap.