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When sunlight, which contains all colors, passes thought a diamond some of the light waves will be reflected by the nitrogen.  The amount of color displayed is dependent on the amount of nitrogen involved.  When we see color it is because the object we are looking at reflected a specific wavelength of the light spectrum.  A good example of this is a pair of blue jeans.  The jeans absorb all of the light except the blue light, which is reflected by the jeans.