When you release the button, Pixy will enter what's called "light pipe" mode, where the LED color is the color of the object that Pixy has "locked" onto. Pixy will lock onto objects in the center of its video frame, so hold the object directly in front of Pixy, between 6 and 20 inches from the lens.
When you are satisfied, press and release the button on Pixy, like you'd click your mouse. The LED will flash a couple times indicating that Pixy has now "learned" your object. It will now start tracking your object.
The video below is a good short "how-to" regarding teaching Pixy objects.
When you first apply power to Pixy, it will spend the first 5 or so seconds determining the correct white balance to use. It will then disable automatic white balance. If you wish to readjust the white balance, hold down the button until the LED turns white and release. It happens quickly, so be prepared! Pixy is now in automatic white balance mode. You can hold a white sheet of paper in front of Pixy so Pixy can adjust the white balance. It only takes 2 or 3 seconds to adjust the white balance, after which you can press and release the button (like a mouse click). The LED will flash, indicating success, and now Pixy is "rebalanced".
That's it! After you select the region, Pixy will "learn" the object and automatically go into "cooked" video mode so you can verify how well your color signature is working.
Sometimes the color signatures you teach Pixy need to be "tweaked" -- that is, you are getting some false positives (Pixy is detecting objects that aren't the objects that you intended) or false negatives (Pixy isn't detecting the object you just taught it, or it's detecting the object intermittently.) You can tweak things by bringing up the Configure dialog (click on the gear icon or select File➜Configure). Select the Signature Tuning pane under Pixy Parameters.