Translation:He has horses in different colors.
It's ‘in verschiedenen Farben’ because ‘in’ takes the dative case when there is no motion of the subject into the object. The preposition ‘in’ is one of a number of German ‘dual’ prepositions that take either the dative or the accusative case, depending on whether it specifies a location or a destination. This holds even for abstract spaces like the color space of this sentence, where a verb of abstract motion would take the accusative, as in ‘Er wandelt Pferde in verschiedenen Farben um.’ = “He changes horses into different colors.”
The common dual prepositions are ‘an’=“at”, ‘auf’=“on”, ‘hinter’=“behind”, ‘in’=“in”, ‘neben’=“beside”, ‘über’=“over”, ‘unter’=“beneath”, ‘vor’=“before”, ‘zwischen’=“between”.
I know it's accusative, I believe 'in' for this context makes the following phrase accusative.
edit: Ok I missed the meaning here, it's actually due to a weakly inflected adjectives rule. Someone put it nicely somewhere in a long explanation. But they referenced Wikipedia, so I thought I'd cite another source.
"In different colors" would mean horses that are different colors from each other (e.g., some are black and some are brown). "Of a different color" would mean that they're all one color that's different from some color already mentioned (e.g., "She has black horses, but he has horses of a different color" (maybe his are all brown or all white)). "Different colored" would make sense for both.
That would be "Er hat Pferde mehrfarbige Pferde."
A respond to the sentence on the top would be: "I would like to have a red one and for my daughter a blue one, please." - "Ich hätte gerne ein Rotes und für meine Tochter ein Blaues, bitte." (The adjectives are copitalized, because the noun, they refer to, is missing. topic for researche: Nominalisierte Adjektive)
By the way, I would say "Ich will eins mit hellblauem Fell und Regenbogenfarben im Schweif." without "einem" because every horse has (a and one) coat. It is not a thing, but a material.
this is confusing. in here - http://en.wikipedia.org/wiki/German_declension - according to the table for adjective inflections, the ending for accusative plural in the strong inflection (because there is no preceding article) is -e (and not -en) So I think that, as in other sentences in this lesson, this is in the Dative. Strong inflection for dative plural adjectives: -en. Is the "in" used here to describe a certain way, state or behavior, what makes it dative?
You found out correct: "in" is sometimes used with Akkusativ and sometimes with Dativ. With Akkusativ it is usually a direction (physically or concerning states), with Dativ it is a location or state.
Ich gehe im Haus. - I go in the house.
Ich gehe in das Haus. - I go into the house.
AndreasWitnstein gave a very good answer to jdgomezm's question.