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Basically, it allows a group with the permission as "yes" to change their own username colour within their own usercp. It's a simple but effective thing to have for a website that has paid ranks on.
Many forums have colors for their user groups set in stone (administrators, super moderators, moderators, etc.) and allowing normal members to change their username color would cause confusion.
I didn't think of this, but there's always away around things like this. One of them could be colour variety instead of a colour pallet. Something like a menu where you can add and remove colours as an option in the admincp. I got this idea from one of the biggest gaming forums on the internet, thetechgame and I believe it's that big because of user options like that.