If you apply a palette to a fixture, you will notice that the encoders display a code, with the DMX value then displayed in brackets. This code is known as the palette reference. The code will be the first letter of the attribute, followed by the palette number. For example in the image on the left, the Red, Green and Blue values have just been adjusted by colour palette 10 (C10).
If you apply a palette and then record a cue or UDK, the console will record the reference to the palette rather than the actual parameter values in brackets. This means if you update the palette, all the cues which used that palette will automatically be updated. This is especially useful for touring shows when using positions, to remove the need of updating each cue individually when you move venue.
Take a look at this quick video for an explanation on Referencing Palettes.