Why do they use color belts to distinguish rank in karate?

Color belts are used to quickly and easily distinguish ability levels in the class.

Students can easily see who to go to for help and the instructor can easy see what the skill spread is in a class and tailor his teaching accordingly.

It also helps the instructor to know which kata or drill to teach a student to be specific to his/her skill level.

And in some cases it is used as a reward system for the students, who don't have the patience to wait years for a change in belt color.