A color scheme is a range of related colors that can be applied to a collection of features, rasters, graphic elements, or symbol components. Color schemes contain at least two colors; the transition between pairs of colors can be either a continuous gradient or a discrete boundary with no blending from one color to another.
ArcGIS AllSource differentiates five types of color schemes. In addition to continuous and discrete, color schemes can also be random, in which a variety of colors residing between two defined colors in an HSV color space make up the scheme in a random order. Different types of color schemes can be combined to make complex collections of colors, called multipart color schemes. You can also store color schemes in styles for reuse or sharing. ArcGIS AllSource includes its default color schemes in both RGB and CMYK color models.
You can modify or create custom color schemes in the Color Scheme Editor, located in the Symbology pane. See Work with color schemes for more information.
Continuous color schemes
Continuous color schemes show a smooth gradation of two or more color stops. Each color stop is defined by a color, its transparency, and a position along the scheme defined as a percentage of the total scheme length from left to right. A stop is always located at each endpoint, at positions 0 percent and 100 percent; the color and transparency of these two stops can be changed, but their positions cannot. A stop is the specific point where the blending of two adjacent colors in a gradient ends. You can move stops in a continuous color scheme by clicking and dragging their relative positions.
The segments between color stops also dictate the appearance of a color scheme. Color scheme segments have two properties: Algorithm determines the path traversed through the color space between the two stop colors (HSV or CIE Lab), and Polar Direction determines the direction traversed around the color wheel for variations in hue (shortest path or longest path).
Color space algorithms
The appearance of segments in a continuous color scheme is determined by the Algorithm property, which calculates the interim colors between the two surrounding color stops.
The HSV (hue, saturation, and value) algorithm is a linear traverse through the color space between value pairs: a linear path from the hue of color 1 to the hue of color 2, a linear path from the saturation of color 1 to the saturation of color 2, and a linear path from the value of color 1 to the value of color 2. All intervening colors are shown, so it is not always the most suitable algorithm for quantitative rendering.
When a segment uses the HSV algorithm, the Polar Direction property dictates whether the path from the hue of color 1 to the hue of color 2 follows the shortest direction around the color wheel (the default) or the longest. Use the Polar Direction pull-down menu to make your choice. When one or both of the color stops on either end of the segment have no hue component (whites, grays, and blacks), the Polar Direction setting has no effect, because there are no hues to blend. When a small hue value is present, some differentiation in color progression can be seen when changing the polar direction. For this reason, HSV color schemes that traverse through low-hue colors may appear differently from their color ramp counterparts in previous versions of ArcGIS.
The CIELab algorithm blends two colors without traversing intervening hue space, resulting in a smoother progression from color 1 to color 2 than the HSV algorithm produces. In many cases, this produces a smooth scheme between two colors, but intermediate color values can be gray (low saturation) if there is a large difference between the two colors. Polar Direction is unavailable for CIELab segments, since this algorithm always follows a direct path through the color space.
The Linear algorithm blends two colors with a linear traversal of the color channel values of color 1 and color 2. By not implying a color space to traverse, the algorithm works directly with the channel values of the specified colors. Use a linear ramp to interpolate between a smooth transition of raw color values for stops that are known to be perceptually equivalent steps. Polar Direction is unavailable for linear segments, since the algorithm always follows a direct path through the color space.
Tip:
Add a transparent color stop to a continuous color scheme to create a ramp that fades away to gradually shows more map content below it. This is a good way to map phenomena with imprecise or unknown boundaries. To ensure a gradual fading effect, set the fully transparent color stop to the identical color values as the nearest color, but with transparency set to 100. this will ensure better results than using an unrelated base color set to fully transparent.
For example, if the scheme goes from blue (RGB 0, 120, 240 and 0% transparency) to transparent, set the second color stop to RGB 0, 120, 240 with 100% transparency. 
Discrete color schemes
Discrete color schemes consist of two or more solid blocks of colors with no gradation between them. Discrete color schemes can be used to create sequential or divergent color schemes. The blocks are synonymous with the color stops in continuous color schemes, but they have only color and transparency properties. There is no concept of a color scheme segment in discrete color schemes, nor is there a limit on the number of blocks. However, as a best practice, three to nine colors is the most commonly accepted range, especially if using monochromatic color schemes.
Random color schemes
Random color schemes do not contain color stops, segments, or blocks. They are defined solely by a minimum and a maximum HSV color. The scheme is compiled of discrete hues that are generated randomly so that their H (hue), S (saturation), and V (value) settings lie between the H, S, and V values of the minimum and maximum colors, respectively. A single transparency value is applied to the entire scheme.
Random color schemes do not include any selectable components along the scheme preview. The appearance of the color scheme is dictated by the HSV values specified as minimums and maximums from two color pickers. These values can be modified in the Color Scheme Editor.
Note:
Although ArcGIS AllSource declares each HSV value to be random, two or more colors may look very similar. Generally, the untrained human eye can distinguish up to eight different shades of the same color. When symbolizing large datasets with random color schemes, it is likely for colors with similar HSV values to be indistinguishable. The effect may be exaggerated if the colors are printed or the minimum or maximum color values are modified in the Color Scheme Editor.
Multipart color schemes
Multipart color schemes consist of any combination of two or more continuous or discrete subschemes. Subschemes are identical to their stand-alone counterparts, except that continuous color schemes in a multipart color scheme contain only two stops. A multipart color scheme can contain up to 20 subschemes but cannot contain another multipart color scheme.
Bivariate color schemes
Bivariate color schemes are designed for use with bivariate colors symbology only. They combine the color values of two discrete color schemes to create a multiclass grid of colors. The size of the grid is always 2 by 2, 3 by 3, or 4 by 4. Unlike discrete color schemes, bivariate color schemes can be rotated, but their sequential order cannot be rearranged dynamically. Individual colors can be edited by formatting the color scheme.