Everyone knows that horses come in all colours, however some people will not realise that horses only have two base colours, and those are red (chestnut) and black.
Black = aaEe or aaEE
Chestnut = aaee or Aaee or AAee
What alters these base colours are single Dominant genes that are known as modifiers. Horses also carry Pattern genes, like those you see on an Appaloosa and a Paint/Pinto horse.
MODIFIERS:
Grey (GG or Gg)
Agouti (AA or Aa) or Bay
Extension (EE or Ee) all over body black.
Cream (CrCr or Crcr)
Dun (DD or Dd)
Champagne (Mainly Miniatures in NZ & American Saddlebreds)
Silver Dapple (Mini's)
Pearl (Spanish horses PP or Pp)
If you can imagine any modifier except grey, as a bucket of paint, take your brush and dip it into Cream and start painting your chestnut horse. The result will be Palomino. Sounds too simple? This makes it easier to understand for some people.
Grey is an exception because its not a colour as such. The grey gene strips colour from the coat. Foals that grey with age, are born black or chestnut (or other colours) and as the foal ages the grey gene strips colour from the coat, usually from 6 months to 4 yrs, but there are exceptions to the rule.
All genes are grouped in pairs, eg. one copy of Cream/no Cream = CR/cr
All bay horses are black horses carrying one or two copies of the Agouti gene (brown/bay). Only black horses are affected by Agouti, not chestnut horses. Chestnut horses can carry this colour but it only affects a black coat.
Likewise one copy of Cream does not affect a black coat, but it will affect a chestnut coat turning it to Palomino. Two copies of Cream will turn a black coat to Smoky Cream, plus the horse will have blue eyes. Two copies of Cream over a bay base coat gives a Perlino horse.