If you're not already familiar with liquid crystals, you might like to take a quick look at our main article on how LCDs work. But here's a very quick recap.
As their name suggests, liquid crystals are a bit like solids in some respects and liquids in others. The ones we're interested in are in a form known as nematic, in which the molecules are arranged a bit like matches in a box—in layers and roughly pointing the same way. Shine some light on nematic liquid crystals and some of it will reflect back again in a type of reflection known as iridescence—the same phenomenon that makes colors from the scales on a butterfly's wing, the grooves on an old-fashioned LP record, or the surface of a soap bubble.