An external reference, or Xref, is a reference to a drawing outside of the current drawing. As it is a reference it's often subordinate to the drawing it's referenced to. With 'Xref Fade & Grey' you can make the drawing graphically subordinate. In what way is up to you. After you select it you can make the xref grey, color it or fade it. Or a combination of those options. If you decide to color it the only thing you have to do after selecting the xref, is selecting a color in which the xref needs to turn. You select a color by selecting an entity in the drawing which has the desired color. If you want to emphasise an entity in the xref, make sure that entity is not colored 'ByLayer' in the original drawing. Color those entities red for instance and xref that drawing into another. Use 'Xref Fade & Grey', turn it grey. You will see the entities you turned red standing out from a grey drawing.