Follow the above steps for setting up and object (lock, expand transform rollout, set shader)
The random color option is intended for desktop shaders that use all three color channels and alpha.
random colors option applies a random color to each vertex, which you could use on a large terrain you don't
want to paint by hand.
The checkbox next to the colors represent whether you want the vertex to possibly have that color depending
on the random outcome.
If you want to exclude the color, uncheck the box.