It is known that many cells throughout the visual system are sensitive  to coloured input. From the retina through to the LGN and up to cortical  regions, V1 and V4, many neurons show selectivity to specific colours.  However, exactly what these cells are coding for is still uncertain.  There are 3 main possibilities.
1) Colour biases
A neuron may show colour selectivity as a secondary characteristic, and  this this may be functionally irrelevant. For example, consider the case  of orientation selective cells in V1, or motion selective cells in V5,  whose primary job is to code for these properties. Just because the  cells shows some colour sensitivity it does 
not mean that this  information is used in a useful way by later stages. These biases may  result form 'random cone clustering' (Conway et al., 2008). Consistent  with this proposal is the fact that these colour biases change when the  luminance of the input changes. This should not happen with true hue  selectivity.
2) Wavelength selectivity.
Although we perceive a unified colour at any one place/time, the input  is actually decomposed, by the 3 cone type photoreceptors responding to  different wavelengths. Cells near the bottom of the visual system (the  retina and LGN) appear to code for colour in this way. For example,  seeing yellow is generated by the correct ratio of 'red' and 'green'  wavelength receptor activation, although there is no hint of red or  green in the banana! This lead onto the third possibility
3) Perceptual colour / hue selectivity.
It is logical to expect that at some stage there exist neurons whose  activity correlates with perceived colour. At this stage a 'yellow'  neurons would respond to our banana.
A number of possibilities have been raised here. Evidence suggests there  is a dissociation between wavelength and perceptual colour codes, with  the former associated with early visual areas (retina, LGN, and V1) and  the later with V4 (refs).
Brouwer & Heeger (2009) have recently probed colour codings in  different areas using the multivariate pattern analysis approach (MVPA).  This is an exciting new method for teasing apart spatial overlapping  neural representations using conventional brain scanning measurements.  Essentially the computer is given the results of a brain scan and asked  to do its best to dissociate between different classes of activity. The  computer is able to use some pretty fancy statistical techniques so does  a far better job than a old fashioned human eyeballing approach could  hope for. They show that the classifier is able to correctly predict the  stimulus colour, based on activity patterns in v1,v2,v3,v4,vO1,LO1.  However, only in V4 and VO1 is a gradual change in perceptual hue  mirrored by a gradual change in neural activity patterns. Thus these  areas are most likely strongly involved in perceptual coding of hue.
Tying these results into the 3 possible signal types described above it  would be very interesting to if the classifier is, in some cases relying  of the first type of signal. That is colour bias signals, which in this  cases would be an artefact. Brower & Heeger (2009) report best  performance using the activity patterns in V1, but could this be due to a  relatively large proportion of colour biased cells - that is, a colour  signal that isn;t useful for perception. To determine the perceptual  relevance of colour related activity in v1, the Brower & Heeger  (2009) experiment could be rerun with each specific hue being presented  at a number of different luminance levels. This may greatly reduce  colour related activity in v1 because hue biases in v1 are often altered  or abolished when stimuli are raised or lowered in luminance (Solomon  & Lennie, 2007).
refs coming soon...