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The Clear Palette function removes all colors that are unused (not in the active colors). Black and White are the only colors that remain if no colors are used.
The clear palette option is often used so that all yarns from a new line or palette can be made available. Yarn lines and palettes can be found in either Yarn Lines (for commercial yarn colors available in TempoWeave) or My Yarns (the weaver's personal set of yarns and palettes). More information is included in Yarn Catalog.