The point of this is to help kids understand and experience the unfairness and injustice in the Hindu Caste system. Before caste discrimination was outlawed, most Hindus abided by the caste system because they believed doing so would allow them to be in reincarnated in a higher class, so kids should keep this in mind today. The day after Caste Day, students will reflect on their experiences in Social Studies. This could be done instead just for each class period instead of the whole day (which would take some organization with your colleagues/team).
Warning: Kids get a lot out of this activity however, you might get a phone call/email from a disgruntled parent. Teachers should be careful not to "assign" kids to a caste (discriminatory) but let the kids choose the color which tells them which caste they're in. In the end, kids need to understand that history is often not a rosy picture, it's very clouded and unfair.