Within each style of martial art the color of your belt identifies your rank. While they will tell the rank that you have reached within a particular style, they do not indicate a universal meaning through the entire martial arts world. They are really an indication of your knowledge of a particular style of martial art.
The practice of using belt colors to indicate rank began hundreds of years ago. Jigoro Kano, the creator of Kodokan Judo, is recognized as introducing the use of belts in martial arts. Originally only white and black were used to indicate rank within his style of martial art. Belts were used so that students who could complete in various activities were easily recognizable. Black belt and white belt students could not compete in the same activities.
It did not take long for additional belt colors to be introduced into the world of martial arts. Just by looking at a students belt you are able to determine their level of experience. Karate, Taekwondo, and other martial arts styles around the world began to use this system as well.
The fact that different schools have different requirements for belt ranking is the one main disadvantage of using the colored belts to signify rank. You find this problem even within schools that teach the same style of martial arts. This can lead to problems when students from one school are not as versed as students from another regarding that style. The problem is most significant among black belts. Schools have the freedom to incorporate their own skills and styles, even though most choose to stick with similar criteria.
Some martial arts styles, Shootfighting for example, do not use belts to signify rank. Many of these styles are forms of self defense so do not use rank at all in their style. Another example of a style that does not use belts to signify rank is Pitfighting. While these styles are excellent for self defense they are different than traditional martial arts.
Belts are a great motivator for students of the martial arts, as they give them a goal. The most prestigious belt is the black belt, and is achieved by most students of the martial arts. To earn a black belt a student must spend years studying and practicing.