The Colours panel allows you to control PuTTY's use of colour.
When the server sends a control sequence indicating that some text should be displayed in bold, PuTTY can handle this two ways. It can either change the font for a bold version, or use the same font in a brighter colour. This control lets you choose which.
By default the box is checked, so non-bold text is displayed in light grey and bold text is displayed in bright white (and similarly in other colours). If you uncheck the box, bold and non-bold text will be displayed in the same colour, and instead the font will change to indicate the difference.
Logical palettes are a mechanism by which a Windows application running on an 8-bit colour display can select precisely the colours it wants instead of going with the Windows standard defaults.
If you are not getting the colours you ask for on an 8-bit display, you can try enabling this option. However, be warned that it's never worked very well.
The main colour control allows you to specify exactly what colours things should be displayed in. To modify one of the PuTTY colours, use the list box to select which colour you want to modify. The RGB values for that colour will appear on the right-hand side of the list box. Now, if you press the "Modify" button, you will be presented with a colour selector, in which you can choose a new colour to go in place of the old one.
PuTTY allows you to set the cursor colour, the default foreground and background, and the precise shades of all the ANSI configurable colours (black, red, green, yellow, blue, magenta, cyan, and white). In addition, if you have selected "Bolded text is a different colour", you can also modify the precise shades used for the bold versions of these colours.