To color up poker chips means to trade in lower value chips of one color for higher value chips of a different color. It's common in cash games when your stack is getting too big and taking up space on the table, and it's common in tournament play when lower denominations become obsolete compared to the blinds and stack sizes.
The most common color scheme is white for low-value chips, red for medium-value chips, and blue for high-value chips.
Poker Color Up in Cash Games
For example, you might have x200 of the same $5 red chips on the poker table.
Coloring up means you could trade in x100 of these $5 red chips for x20 of the $25 green chips. You don't have to color up all your chips.
Coloring up makes more room on the poker table and gives the poker room more access to smaller chip denominations.
Building a huge stack of chips is very common in live poker at the $1/2 table or the $2/5 tables.
When you get over a certain size stack, the dealer or poker room manager might ask you to color up your poker chips.
You don't have to color up all your chips but you just slide over some stacks of chips to the dealer and they will trade them in for larger chip denominations.
Color Up Poker Chips in Tournaments
It is common to color up poker chips in tournaments. As the tournament progresses, stacks and blinds get bigger, and the smaller denominations of chips become less important. A chip worth 10, when the blinds are 1k/2k becomes obsolete.
During a break at the tournament, the director will color up poker chips for the entire table.