When the sunlight passes through drops of rain or mist, it get split up in to colours. Waves of light can have different wavelengths and depending on that wavelength, light can look a different colour!
The light we normally see looks white, but is really made up of all the colours mixed together. When white light hits raindrops and reflects off them, rays of the different colours get bent by a different amount, so the light gets split up into all the pretty colours.
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