Dye can be used at the Dyer's shop to change the color of cloth or thread.
Dye is made by milling certain plants at a Millstone or Quern. Usually all caravans will bring dye for trade too. Importing dye however is only useful if you have a somewhat skilled dyer, otherwise little value is added and the work wasted. It is better to buy or grow the 'source' plants if available and mill them yourself. Of course, the nice colours are a value in themselves, if you don't stuff it all in bins.
Dyes are stockpiled as "Food/Milled Plants", along with flours. On the stocks screen, dyes are listed under powder.
In theory, dyed objects can be colors other than the basic 16. However, the game displays them using the basic color that is the nearest match (dimple dye is (dark) blue, and emerald dye is light green).
Dyes can be applied either to woven cloth or to the raw thread. There is not known to be any difference in the end product based on the point at which the dye was applied during the production process. Dyes can't be applied to finished goods made from cloth, such as clothing, bags, or crafts.
 See also