What you see at the sky over Ouray in Colorado is an optical phenomena produced by light interacting with ice crystals suspended in the atmosphere. Named circular halo (properly called the 22° halo), the particular shape and orientation of the crystals are responsible for the type of halo observed. Light is reflected and refracted by the ice crystals and may split up into colors because of dispersion.
The crystals behave like prisms and mirrors, refracting and reflecting light between their faces, sending shafts of light in particular directions.
For this to happen, they must be as regular and nearly transparent as possible. If the air is only slowly enriched with water vapor, the crystals have plenty of time to grow - the probability of them falling out clearly then increases. If these clear crystals then float at a height of eight to ten kilometres, a so-called 22-degree ring can form. This is the classic among the unusual celestial phenomena that are as frequent as they are almost unknown because they can only be observed from a very specific position on the ground. The 22-degree ring is drawn around the sun at a distance of exactly these eponymous 22 degrees from the sun.
The colours of the rainbow, which are caused by the refraction of light, are arranged in the opposite way to those in a normal rainbow. Often the sky also shows a so-called parhelion at the same moments when a 22-degree ring is formed. This is a cloud of ice crystals that shines in rainbow colours. The principle behind the formation of these impressive celestial events is the same as that behind the illumination of a rainbow.
Where light is refracted into the almost spherical water drops of a rain cloud, it is the water crystallized into thin hexagonal plates and hexagonal columns that refracts the light rays in the various forms of the halo. And not just anywhere, but according to laws that usually result in a 22 degree halo: Because water arranges itself hexagonally when it becomes solid, light rays that refract through an ice crystal are deflected at an angle of 22 to 46 degrees.