Dye traits allow you to change the colour of your characters blood, flesh, teeth and skin, naturally each character starts out as a blank slightly off white cream canvas that you can draw markings on top of with various colours and shapes. Their flesh, blood and teeth by default have a natural colouration,, you can find more about those guidelines and which colours are free to use here. You can see dye traits as a canvas colour changing item that turns your usual blank canvas into a different default colour, this also affects the natural colours of the flesh, blood and teeth too.
Dye trait only affects the main colouration of your character. Any marking drawn on top of that can be any colour and shape no matter which dye you have used. Some dyes provide unnatural colourations while some are more like pigment related colourations so make sure to read each individual entry of each dye to understand the colouration rules better.