When you use the Type tool or the Custom Shape tool, you can choose a color right in the Options area for these tools. Just click on the Color box and Color Swatches will open up. However, many Elements users prefer to use the Color Picker. So, Adobe came up with a way to keep both sides happy. If you are a "fan" of the Color Picker, just click on the multicolored button in the bottom right corner of the box to call it up.
NOTE: This multicolored button was introduced in Elements 11; in earlier versions you click on the More Colors button.