Depending on the animal, they either have special cells filled with pigments that can expand or contract at will to cover more surface area with that color, or they have special light reflecting crystals in their skin that depending on how they are arranged and angled, will change the color of the light that bounces back, or sometimes a combination. Chameleons use the latter method, while the octopus uses the former.
Depends on the animal, but I think you’re thinking of cephalopods. The answer for them is chromatophores. There are tiny little pigments throughout an octopus’s skin, and these come in several different colors. When a chromatophore expands, that pigment becomes more visible, and so the octopus/squid/cuttlefish appears to change color.
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