Color by Intensity custom/auto settings display the points according to their intensity value. The default grey scale of TerraScan stretches from dark grey for low intensity values to white for high intensity values.
Intensity auto uses a more homogeneous grey-scale coloring scheme. The intensity values are fitted to the grey values of the coloring scheme in a way that each grey value gets a similar amount of points. This results in a smoother intensity display, especially if intensity values are not normal-distributed.
Intensity custom uses the MicroStation color table and fits the intensity values to the grey-scale color values. The Colors button opens the Coloring scheme dialog, the same dialog as described for Color by Elevation setting.
For the intensity custom coloring, nothing has changed, it’s the old intensity coloring method. Intensity Auto always fits the intensity values but it also includes another color scheme “fitting”. The difference is most obvious if intensity values are not normally distributed (the typical curve with one peak and smoothly increasing/decreasing numbers). If the curve, for example, shows two peaks, the old intensity coloring doesn’t work nicely but intensity auto should come up with a good point display.