Hi Thomas
When deselected the colour buttons update to show the colours wherever the insertion point (caret) is.
When selected the colours remain unchanged as the insertion point changes.
So, for instance, if you are highlighting sections of your comments you might set the background to yellow and the text to red and then repeatedly select sections of text and colour them. In this case you would not want the toolbar button colours to change as new pieces of text are selected so you would turn this option on.