The blog Zee Says was mentioning organizing books by color for the YA display at a library. Because it helps when people come in and can't remember the name of book or author -- but do know that the cover is purple.
Of course, the key is that it's a display -- it's not a good method for organizing books, in general. Which is why it always bothers me when I see it in design magazines -- how are you going to find the books you want? Well, maybe if you're extremely visual and don't have a big collection. It just doesn't strike me as very practical.
This reminded me of an art project that was done in San Francisco. Adobe Books allowed an artist to rearrange their entire collection by color. It's stunning.
I generally organize my books by subject (nonfiction -- although I make up the subject categories myself) or author (fiction, science fiction -- separately shelved). But I did pull my fairy tale themed books out when I started getting a lot of them. So I thought that would be fun to reorder. I ended up with two shelves: one has the ROY G. BIV action and the other is all the brown, black and cream books; there were a lot of those.
I really like how it looks, but I don't see myself extending it to the whole collection. Maybe I'd do each shelf by color, though. That could look pretty darn cool.