It is a shade of green (like the name for many of the other towns in the first series were different colors), and Pallet Town is named for the pallet that painters use to paint thing.
Pallet=
The reason I chose Celadon is because it is a lovely shade of green. I came up with it after telling somebody that my favorite color is Cerulean, which connected my mind to Cerulean City, which connected my mind to Celadon City, which connected my mind to the COLOR celadon, which is not only a pretty color, but a great name for a place, due to the planet being so green (as in, full of plant life).
“…Judge not what a man has done, but judge what he could have done if he was a different bloke altogether. For art thou a leper? And a leper can changeth his spots…” --Rudy Wade, Misfits (Series 4, Episode 8)