I believe the colored range is the one at which you can see the terrain and the range at which you have a chance to spot creatures. Note that there is no automatic spotting of creatures: they have to be "visible", i.e. not blocked by e.g. trees. I would expect a blind ass guy to see the terrain out to what the lighting allows, but the creature visibility range to be considerably lower. I would also expect creature visibility to be better at a higher vantage point and in open terrain (open mire from a cliff or mountain ought to be ideal).
Grey terrain is basically your character's memory of the terrain. An example of that memory at play is when NPCs cut down trees: you "see" the greyed out trees as they were when you last saw them, but as they come into view you realize they've been cut down.