The colours are the result of diffraction by small cloud droplets.
The droplets scatter light waves mainly from their surface. Each surface point is a source of outgoing spherical waves. The waves interact with each other and in directions where wave crests coincide there is bright light. Where the crests cancel there is darkness. The result in the sky from millions of same sized droplets is a circular diffraction or interference pattern – a corona.
Things change when the cloud droplets have different sizes in different parts of the cloud. Diffraction still occurs but we see a many coloured jumble rather than well ordered coronal rings.
When the droplets in one area have a wide range of sizes or the cloud is thick enough for multiple scattering to occur then we no longer see any corona or iridescence.
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