Thanks Alfie.

Welcome

But aren't we suppose to see a quick add color button to the right of the post entry form, you know near where we have BOLD, ITALIC, LINK, LIST IMAGE buttons etc ? So that when people click on the RED button the text will automatically be scripted to show up as RED ?

It depends.
+

• comfortable
  
• no BB-code syntax necessary

-

• button area may become 'crowded'
  
• even if you are using only 3 colors, they may not suit the background-color of a particular forum
  
• if an admin doesn't want to use them, has to edit the code

±

• relies on JavaScript (like all other buttons)

Maybe I don't fully understand how this works...

You are not alone
I'm just beginning to get a glimpse of it.

P.S. Have a look at 'templates/default/posting.tpl.inc' lines 112-119.