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The Use Layer Colors preference is one of the quick preferences that you can activate on the Tool Bar. It is used to activate or deactivate the layer colors that you can assign to your layers. It is very useful when you have a multistory building, allowing you to see which stacked items in the building are not lined up with the others.
This image shows the view of the building where some of the walls do not line up on all layers. It can be hard to see which layer is the problem one.
This image shows Use Layer Colors activated. The layers have been edited to have a different color for each layer. Its easy to see which layers do not line up.