In our Dojo here @ Buenos Aires we use the colored belt system to help newbies and between ourselves to know at wich level are each of the students. As Mike Eleffson said, it serves as a Handle with care label (for lower ranks) or You can start getting rough (for higher ranks).
The colors we use, differ a little bit in the number than the ones I read you use in the US.
Begginers - White
5th. Kyu - Yellow
4th. Kyu - Orange
3rd. Kyu - Green
2th. Kyu - Blue
1st. Kyu - Brown
Hakamas are only worn by Shodans and higher ranked students.