There are all sorts of ways you can organize your selection, culling, and search workflows in Lightroom. One of the sets of tools available is color coding.
There's a choice of five colors--red, yellow, green, blue, and purple--that can be used to group images. Each color pairs with a metadata text field known as the color label. They are purely metadata fields, which means that they do not affect the actual image. And they can alongside the star ratings and pick status, or independently.
There's no right or wrong way to use the color labels. You can use them (or not) however best suits your workflow. The text is purely informational and doesn't change anything about the image itself. It shows up in various places in Lightroom's user interface, including an info popup when you assign a color to an image, in the Photo > Filter by Color Label and Photo > Set Color Label menu items, and in the Label field in the metadata panel. You can also use them when creating smart collections and filters.
Lightroom comes with three built-in options--Lightroom Default, Bridge Default, and Review Status. You can use any of those. You can also make your own custom color set, and that's what I'm focusing on here.
But they show up in various places, including the Photo > Filter by Color Label and Photo > Set Color Label menu items and in an informational popup when you assign a color to an image.
How to Do It
You can find the settings for this by going to the Library module and then clicking on the Metadata menu item from the top menu. Go down to Color Label Set.
You can choose from one of the three built-in presets. But if you want to create your own, go down to the Edit option. That will bring up the Edit Color Label Set options screen. From there, start with the of the built-in presets and change the text corresponding to each color as you like.
The changes will only stick if you save them. To do that, click on the presets dropdown from the top and choose Save Current Settings as New Preset.
As you can see, that same drop-down gives you some basic options for managing the color label presets, like restoring the default sets, deleting presets, and renaming them.
Where Things Get Interesting
So those are the basics, but there are some things about using this tool that can get more interesting and complicated.
Using Multiple Color Label Presets
Each image can only have one value in the Label metadata field. So you can't have an image that has both a "Red" text label and a "Good to Use" text label.
But what you can do is use the color label sets independently. If you try using them on the same collection of images, it can get messy and confusing very quickly, because if you assign color labels using one color label preset, then switch color label preset and assign some of the images using that new preset, you'll end up with a mix, with some showing the new label and others not. So, in general, it's best to stick to one preset, but if you're determined and careful about it, it is possible to use more than one color label preset in your workflow. A practical example where that might come in useful is if you have both work and personal photos in the same catalog and have different workflows for each. The critical thing to remember, though, is that each image can only be assigned one color label.
Custom Text Labels in Smart Collections
There is one other place where power can either lead to flexibility or confusion. That is in the metadata panel. If you use the Default metadata view, you'll see a Label field right under the star rating field. You can input free-form text directly into that field that works independently of any of the color label presets. The catch is that if that text doesn't match one of the labels, it will remove the visual color from the thumbnail.
Why might that be useful? Well, you can then use that as one of the variables in creating a smart collection.
The risk, of course, is that you can end up with a confused mess. But it's at least worth knowing that the opportunity exists if you want to incorporate it into your workflow.
When assigning new text labels, there's no reason you have to use all five colors. You can use as many of them or as few as you like.
You can't change the colors--just the text labels for them. So you can't change the yellow to a darker orange or pink, for example.
In general, you can use any plain text for the labels. There is one qualification of that: if you're trying to use the same color text labels in both Lightroom and Bridge, you'll need to make sure that they're consistent across both apps.
You'll notice that while you can use the number keys 5 to 9 as keyboard shortcuts to assign colors to images, but there's no number next to purple. There's no way to change that within Lightroom, but you can set up an external workaround with a universal hotkey app for your operating system. AutoHotKey is a popular one for Windows; Keyboard Maestro is one for Mac (it's a paid app). If you don't want to go to that trouble, you can still use the assign color buttons in the toolbar (press T to toggle it) as a quick method.