Microsoft introduced colored folders in OneDrive on the web in August 2023.
With version 24.132 the OneDrive Sync client also supports colored folders in Windows Explorer.
The rollout of version 24.132 is targeted in the last ring on October 7, according to OneDrive release notes. As known, the OneDrive Sync client is updated automatically.
OneDrive Sync clients in the Insider and Production Ring should already be able to use the colored folders. The feature in Windows Explorer is available for Windows 11 and Windows 10.
Right-click on a OneDrive folder, in the menu under OneDrive you will find the option to change the folder color (in Windows 11). The sync client synchronizes colors from the cloud as changes are made to the folder and back to the cloud.
In Windows 10, the option for colored folders is sometimes on different positions in the menu.