The first page you will see asks you to give your new dropdown a "label". This label is for your reference to be used in the Admin Panel only when assigning this "dropdown" to 'category questions' and "optional site wide fields". On the next page is where you will designate the values (colors, in our example) that will be displayed in the dropdown, as well as, the order that you want them displayed.

For updated and detailed information on managing category specific questions look to the new category specific question section of the support wiki