Attribute Values are used as a way to identify a difference with a product, allowing you to create multiple Variants of one item.
In this case we are creating a range of color choices for customers to pick from for shirt options.
Simply click the "Add attribute value" to create a new value.
You will be brought to a modal with a field for the "color name", and another field for the "Color on palette" (color associated with the Attribute Value).
Choosing a color from the color pallet allows users to see a color association among all of the product variants.