Copied from the CA Agile Central Community:
When I train new teams, I recommend that they use colors on stories and tasks in whatever way helps them organize their work. Some teams use colors to differentiate between functional and technical stories, there are a million different ways they could be used. What's important is that the team agrees and understands what the colors represent.
When it comes to portfolio items, I encourage them to agree on color definitions at the release train level so they are meaningful. One of our groups is using them during their quarterly planning process to mark features that are groomed and prioritized but fall below the waterline. That way, if they manage to pull them into the release and work on them, they can easily tell that they were not part of the original release plan.
Display Colors of work items