In the past year, I have had a few chances to play with Google Earth and try out some of the amazing tools that come with the program. For the Social Television class I took at the MIT Media Lab, I used placemarks, 3D buildings, and zooming animation to create the software demo for our final project. More recently, I was able to use Google Earth to create Craigslist coverage maps that show the rough boundaries of the five Craigslist areas in Massachusetts.
How did I make the different-colored areas in Google Earth? By using overlays. It's a drawing function that lets users trace points on a map with a mouse. Once the points are joined, the area looks filled in. Different colors and transparencies can be applied, which lets overlapping areas be clearly shown (see the Invantory blog post, above for an example of overlapping overlays).
Overlaps are an extremely useful tool. For instance, in the map below, I wanted to show Newton, Massachusetts, and nearby communities and commuter destinations using different-colored overlays. I basically hand-matched the inner overlay to the actual boundaries of Newton, which are a display option in Google Earth. The outer overlay was hand-drawn according to municipal boundaries as well as my own rough estimate of the area of downtown Boston that many Newton residents commute to every day:
Google Earth is a free download. I recommend using a reasonably recent and powerful desktop computer, as it uses lots of processing power to run and render sophisticated 3D images.