Food coloring is a type of food additive which imparts color. Some such additives are dyes, meaning that they are water soluble, and used in a variety of foods which contain liquids. Lakes have a dye base, but they are designed to disperse in oil as well as water, and they can be used in preparations which lack sufficient moisture to hold dye. Lakes tend to be less prone to coating the mouth, a common problem seen with dyes used in things like frozen treats.
People have been adding color to their food for thousands of years. Early food colorings were commonly made from spices such as turmeric, along with crushed seeds. People added color to food historically for many of the same reasons that we do today: to enhance natural colors, to lend a more familiar color to food, and for decorative purposes. Food coloring is especially popular with preserved foods, which tend to turn dull gray. Although these foods are perfectly safe to eat, they don't look quite right, and coloring can make them more appetizing.
Other sources of natural coloring for food include some minerals, along with several members of the insect world. Cochineal red, for example, comes from beetles. Chemists have also developed purely synthetic food coloring, to obtain especially bright colors or to create colors which are hard to find in nature, such as blue.
Like other food additives, food dyes must be tested for safety before it can be used. Several colors once recognized as safe have since been removed from the market due to health concerns, and some consumers try to avoid all artificial colors, even those which have been tested and approved. Avoiding food coloring can actually be quite difficult, as one of its most common uses is situations where natural colors need to be restored. Many oranges, for instance, are sprayed with coloring to cover up their naturally more greenish or brownish tints, and the use of dye is not disclosed.
At home, people often use coloring for decoration. It is classically used in icings for cakes and cookies to create colorful and decorative designs. Food coloring can also be used for projects like coloring Easter eggs. People also use it in craft projects, because the color usually takes well and it is nontoxic and easy to handle, which makes it great for craft projects with children.