The famous "Stroop Effect" is named after J. Ridley Stroop who discovered this strange phenomenon in the 1930s.
The words themselves have a strong influence over your ability to say the color. The interference between the different information (what the words say and the color of the words) your brain receives causes a problem. There are two theories that may explain the Stroop effect:
1. Speed of Processing Theory: the interference occurs because words are read faster than colors are named.
2. Selective Attention Theory: the interference occurs because naming colors requires more attention than reading words.
I think that this puzzle would be easier for a very young child than for older children or adults. Try this out on some small kids who know their colors, but cannot yet read! I would imagine that the children would not get confused by this puzzle because the words would not have any meaning to them.