Coloring Vertices with Vertex Paint
One downside to material slots is the fact that although they make defining multiple colors and materials on a single mesh easy, there's a very distinct line between materials. The color of one material doesn't smoothly transition into the next. For example, if you want to create a car with a paint job that's light blue near the ground that smoothly transitions to a bright yellow on its roof and hood, you can't effectively do this color graduation with material slots. However, with vertex colors, it's completely doable. This technique works only on mesh objects, but it's also a very effective way of quickly coloring a mesh without the hard-edged lines that material slots give you.
The way vertex colors works is pretty simple. You assign each vertex in your mesh a specific color. If the vertices that form a face have different colors, a gradient goes from each vertex to the others, where the color is most intense at the vertex and more blended with other colors the farther away it gets.
Of course, trying to go in and explicitly set the color for each and every vertex in a mesh can get really tedious on complex meshes. To alleviate this problem, Blender has a Vertex Paint mode. You activate Vertex Paint mode by selecting (right-clicking) the mesh object that you would like to paint in the 3D View and then pressing V. You can also use the mode drop-down menu in the 3D View's header. When you enter Vertex Paint mode, your mouse cursor changes to ...