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The short answer, however, is that LED’s don'’t change color, rather different diodes receive current giving the illusion that the color changes. Because there are so many uses for LED lights from Christmas decorations to traffic signals, it is important to understand the technology behind these amazing lights. For the first time in history, artificial light is able to recreate virtually every color in the visible light spectrum.
LED Basics – Construction

The first thing to understand when questioning, “How do LED lights change color?” is to see a LED light as a series of diodes that emit light when electricity is introduced. This electricity flows from positive to negative, and depending on how each diode is manufactured, a different wavelength of the light spectrum will be emitted during the transference of energy. In other words, each diode has the capacity to produce a single color, and when it is powered, it gives off that color of the light spectrum.

An even more simplified way of viewing this is to look at the most basic colors in an LED, Red/Green/Blue, that when ‘lit’ together produce white light. Now, in order to produce a color-changing LED, several diodes must be in the light, each having a different capacity for a single color. As electricity passes from diode to diode, the LED will appear to change colors. Should all of the diodes be powered at once, the result is white light.