Jem gives Scout quite an education with his explanation of "colored" and "mixed children" and their differences in Chapter 16 of To Kill a Mockingbird. The discussion arises when the children observe Dolphus Raymond sitting with a group of Negroes in the town square on the day of the Tom Robinson trial. The conversation soon turns to Raymond's children, fathered with his black mistress. When Scout asks her brother, "what's a mixed child?", Jem explains:
"Half white, half colored."
When she asks how you can tell the difference, he tells her that
"You can't sometimes... you just hafta know who they are."
Scout next asks, "Well how do you know we ain't Negroes?" Jem's Uncle Jack has already answered this question for Jem, telling him that
"... as far as he can trace back the Finches we ain't..."
And what makes a person "colored"?
"... around here once you have a drop of Negro blood, that makes you all black."
According to Jem, a person is "colored" if there is anyone in his parentage or ancestry who is "colored."
Jem, of course, repeats what he has been told or has overheard. Within the setting of To Kill a Mockingbird, which is the 1930's in Alabama, there was an anti-miscegenation law which prohibited interracial relationships. (This law was ruled unconstitutional in 1967 by the U.S. Supreme Court in Loving v. Virginia.)
When Scout asks her brother if they are "colored," he tells her that Uncle Jack has said that as far back as he can trace the Finches they are not,
"...but for all he knows we might have come straight out of Ethiopia in the Old Testament."
Scout concludes, "Well, if we came out durin' the Old Testament it's too long ago to matter." and Jem agrees, "That's what I thought."
This conversation between Jem and Scout has arisen because of the presence of Mr. Dolphus Raymond, who has apparently violated the law with his interracial relationship. Evidently, his offense is ignored because the townspeople believe that he has become a drunkard, perhaps because of a tragic incident in his past. Then, when a small boy holding the hand of a "Negro woman" walks toward Jem and Scout, Jem points out that the boy is one of Mr. Raymond's children. "How can you tell?" asks Dill, "He looks black to me." Scout echoes the question and Jem replies that sometimes a person cannot, but "you just hafta know who they are."
Harper Lee's injection of this small episode right before the trial of Tom Robinson is significant as it suggests prevailing attitudes and conditions.