The colour wheel is a quest item in Mourning's End Part II and Song of the Elves. Although it plays no direct part in the quests, it can be used as a guide to the crystal puzzles in the Temple of Light and the library of Priffdinas as it provides clues to what colour of light needs to be sent to what part of the temple in order to unlock various doors there.
Red, green and blue are the primary colours of the additive (projected) colour system while cyan, magenta and yellow are subtractive (reflected) colours. In the quest you will find various doors which have two colours attached to them, you are required to use prisms, mirrors and coloured crystals to direct a beam of light which is the correct colour to the various doors to unlock them. The doors will only unlock when they are hit with a beam of light which is complementary on the colour wheel. So for instance, the magenta door must be unlocked with a green beam of light.
The complements used in this spectrum of light are Magenta and Green, Cyan and Red, and Yellow and Blue.
If lost it can be re-obtained by searching the dead guard slumped against the wall by the crystal dispenser in the temple of light, or by searching the pack by the crystal dispenser in the library.