(Simplified) It has a layer sensitive to blue and a layer sensitive to green. By using different color light to expose it you get different steepness of contrast all in one sheet. You can make it be anything from 1 to 5 and everything in-between. With graded paper, you get one grade (2 for example) and that's it.
By using " different color light to expose it" does that just mean the different colors which are shown in the scene at which the camera is pointed, or does it mean using a color filter on a lens?