Imagine you have three LEDs (red/green/blue "RGB").
Each LED primarily stimulates a corresponding type of "cone" in the human eye as described here.
So a perceived color is created by a combination of the intensities from the three LEDs. If we include intensity of color as a discrete color, then for 1,000,000 colors we would need log2(10^6)/3 bits per color or about 7 bits per 'color'.
Most likely they are using 8 bits PWM intensity per color (about 0.4% steps in intensity), giving 16,777,216 or 16 million 'colors'. In reality you are not going to be able to visually distinguish anything like that many, and many of the 'colors' are just different intensities of a color that is visually the same.
White LEDs look yellow when not on- also some sources use a yellow component to the light to make the color appearance better for sensitive things like flesh tones and food (so they're RGBY rather than RGB).