Cutting through all the [templated] legalese, we can say: "Contract A, between parties K and L, concerning transaction T: T shall be considered done and legally binding once Coloured Coin X has been paid from address [foo] to address [bar], and has been verified by no less than 20 subsequent blocks."
The idea of a Coloured Coins is that you use something uniquely identifiable to make a transaction in globally verifiable transaction log. (Iow: blockchain.) Real-world contracts can reference the binary result of "has this transaction happened?" to verify that a contract has been completed and an off-blockchain transaction is valid.
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Quoting myself from https://news.ycombinator.com/item?id=14775416 :
Cutting through all the [templated] legalese, we can say: "Contract A, between parties K and L, concerning transaction T: T shall be considered done and legally binding once Coloured Coin X has been paid from address [foo] to address [bar], and has been verified by no less than 20 subsequent blocks."
The idea of a Coloured Coins is that you use something uniquely identifiable to make a transaction in globally verifiable transaction log. (Iow: blockchain.) Real-world contracts can reference the binary result of "has this transaction happened?" to verify that a contract has been completed and an off-blockchain transaction is valid.