Touchstone is the fool, the court jester, at the court of Duke Frederick. He wears clothes that are many colors, as was the tradition for court fools; this is why he is referred to as or called "motley" now and then. Motley is clothing of many colors. Touchstone is also a favorite with Rosalind and Celia, and they trust him.
Shakespeare uses fools to reveal things about important characters. Fools were valued for their innocence of mentality and their ability with words, especially puns. The role of the court jester was to make remarks about what the nobles were doing that revealed truths about their motives or actions that they might not want to face up to. Anyone else doing this in a serious manner would be responded to with wrath and possibly punishment, but fools could reveal unfavorable truths with jesting and word play and puns and be responded to with laughter--and maybe some thoughtful consideration would go on behind the scenes. In the Forest of Arden, Touchstone uses this skill on everyone he encounters and, in so doing, opens the strangers' characters up to the audience/reader with candid honesty.