It flashes different colours. In different patterns. Oh yes. Naturally there aren't many screenshots available, so here's a short video that should give you a better idea of this package's purpose.
Picking one of the six musical genres sets the DSi screens pulsing different colours to a set beat, leaving you to alter the brightness by sliding your finger up and down the touchscreen. Each genre has its own palette, though it's difficult to see any clear connection between the two, and there's no option to vary the tempo, or even set your own custom palette or alter any aspect of the show other than the brightness.
The Disco Disco mode sounds far more exciting: here your DSi's microphone picks up any music being played and generates a custom light show. It sounds like a great idea, but unless you're listening to the sound of a single drum being banged repeatedly it's not much use: the microphone can't distinguish between the beat and the lead, even on bassy tracks, meaning rather than flashing in time with the music it just tends to glow constantly. We tried it with pop, rock, hip-hop and Motown, using a selection of different speakers and placements of the DSi, but no combination gave anything bordering on a disco atmosphere.
Discolight, like Flashlight before it, fails at fulfilling a basic function, this time to bring a little disco glamour to your life. The promising Disco Disco mode tends to result in arbitrary flashing, and although the whole package will raise a smile it only lasts a minute at best meaning that, like all the best discos, this one brings with it more regret than fond memories.