Your display type and the Number of Colors selection determine the number of color buttons that make up a palette. You will have two, four, or eight color buttons in the Color dialog box. The different color buttons in the palette control the colors used for different areas of the screen.
If you have eight color buttons, they will be used as follows (buttons numbered from left to right, top to bottom):
Active window borders
Inactive window borders
Switch for workspace 1 and every fourth additonal workspace (workspace 5, 9, ...)
Text and list areas
Main window background and switch for workspace 2 and every fourth additional workspace (workspace 8, 12, ...)
Dialog box background and menu bar and switch for workspace 3 and every fourth additional workspace (workspace 7, 11, ...)
Switch for workspace 4 and every fourth additional workspace (workspace 6, 10, ...)
Front Panel background
If you have four color buttons, they will be used as follows (buttons numbered from left to right):
Active window borders
Inactive window borders
Main window and dialog box backgrounds and menu bar
Front Panel background
Workspace switches and backgrounds
Text and list areas
If you have two color buttons, they will be used as follows (buttons numbered from left to right):
Active window borders
Everything else