"Pigment of their imagination" sounds close to the common saying "figment of their imagination". If something is a figment of your imaginaion, then that something was imagined. Pigment refers to the color of something. Artists are people that create paintings, drawings, sculputors or pieces using extensive colors, or pigments. The word "pigment" was used in place of "figment" when discussing an artist dreaming in color. Color refers to pigment. This joke is a play on the word pigment.
When artists dream in color it ' s a pigment of their imagination .