This color source assigns colors to points based on elevation values.
By default, the elevation coloring is along the z-axis. The default maximum and minimum values along the z-axis are read from the point cloud bounding box.
You can choose any of the three axes (X, Y, or Z) as the Elevation axis. To change the elevation values along the current elevation axis, use the picker icons on the right of the elevation values to select the minimum and maximum values on the viewport.
You can choose from predefined color scales or create your custom color scale.
This video shows how to change the elevation range.
This video demonstrates how to apply elevation coloring along any direction other than the three main axes.