Speed of Processing Theory: the interference occurs because words are read faster than colors are named.
Selective Attention Theory: the interference occurs because naming colors requires more attention than reading words.
I think that this puzzle would be easier for a very young child than for older children or adults. Try this out on some small kids who know their colors, but cannot yet read! I would imagine that the children would not get confused by this puzzle because the words would not have any meaning to them.