In ultima online players were split into 3 categories:
Blue
Gray
Red
and later Orange
Blue = "good". If you are in a "guard protected zone" and you attack someone "blue" guards will come and murder you instantly. As long as someone says "guards"
Gray = "criminal". You commit a criminal action, you are gray. If you attack someone gray, no consequences will be made against you. Only thing is if I am gray, and you are blue, and you attack me, you turn gray _only to me_. Gray expires in 5 minutes.
Actions that cause this: stealing, healing someone gray / red, attacking someone blue but not yet killing them.
Red = "permanent criminal". You are red as long as you have any player kills registered to you (they decay 1 kill per 8 hours I believe. A PK is only counted if you kill a blue player or participated in killing a blue player.
There were a few fun exploits:
You can transform into a creature. This meant you turned gray without any crime. Well if someone attacks you, you can attack back. So it was a scam we used to pull where there would be occasional attacks against the town, I'd run around screaming that I'm a noob and need someone to get a monster off me, and the monster would be a friend.
Well the friend had a nearby tamed dragon that can now freely attack the guy who flagged himself against my friend without consequences. And anyone who assists now has a dragon to fight (killable, but lots of resources spent, and usually would take a few people to do, AND my friend was a competent mage, so now you also have a mage gunning for you). We didn't always succeed but it was fun. I think we got suspended a few times for it. lol.
There were some tricks to getting people to attack the wrong target and thus flag themselves in town and get the guards to kill them. But it wasn't commonplace. Maybe during beta there were problems.
Oh yeah, orange. Orange were players participating in guild wars. Orange players can attack other orange players. It is basically permitted criminal activity among those participating in a guild war. And in Order vs Chaos you also got the best shield in the game for free for being on either side.