How to interpret this timing diagram?
It looks like the colors of the wires in the schematic are supposed to indicate the logic level of the signals. Specifically, the schematic is showing the state of the circuit at the point indicated by the vertical yellow line in the timing diagram, just after the falling edge of S. Q and E are high so they are red; S, R, and Q-bar are low so they are blue.

Having said that, using red and blue as colors of signals in the timing diagram seems like a very poor choice to me. I suggest you ignore the colors of the signals in the timing diagram; they don't seem to have any significance.