In literature yellow is symbolic of evil. In "The Yellow Wallpaper" there is, of course, ambiguity about the source of the "evil" as the reader is uncertain whether the main character is, indeed, overwrought or whether her husband tries to convince her that she is ill.
The confining room, much like the confinements of the woman's society, produces the evil as the woman is forced to be captive to either her husband's demands or to the conflicts within her. She struggles to tear away the wallpaper, to break free of the confinements of either her own mind or the suppression of the male-dominated society.
Eventually, she becomes obsessed by the symbol of her terrible confinement and is reduced to insanity.
The pattern of the yellow wallpaper is symbolic of the narrator's deteriorating mental state as she is locked up in the room for "treatment." The wallpaper has a horribly busy, ugly pattern, and as time passes, the narrator's mind slowly becomes busier with her obsession of the wallpaper. The wallpaper is also symbolic of the isolation she is subjected to. The narrator eventually ends up tearing down the wallpaper, which, in her own mind, frees her from her obsession. However, she has descended into madness after doing so.
The wallpaper evolves as a symbol progressively through the story as the narrator becomes more and more obsessed with it and as her mental state deteriorates. The narrator writes about the wallpaper more and more in her journal until it is all she writes about.