Weather 101: Nacreous Clouds
Also known as "mother of pearl" clouds, these icy clouds form in the lower stratosphere when temperatures drop to around minus 85ºC. First, see the nacreous clouds below.
Image source: Spaceweather.com
Then, check out the layers of the atmosphere. Our typical weather happens in the lowest layer of the atmosphere, called the "troposphere." Powerful storms are required to fling moisture that high in the atmosphere.
Refraction of light can simply bend the light ray. Or, it can separate the light ray into all of the colors of the rainbow.
This image shows light bending as it goes from less-dense air to more-dense water. The same happens when light goes from air to the tiny ice particles in nacreous clouds.
Sunlight shining through tiny ice particles (~10µm across) produces the characteristic bright iridescent colors by breaking the light into the colors of the rainbow, as in the following image. 
In summary:
When sunlight hits the very small ice particles, it is refracted as described above. Refraction happens when a light ray moves from, for example, less dense air to a more dense ice particle. The light is "bent". Sometimes, the ice particles even act as a prism, separating the light into the colors of the rainbow. The bending of sunlight and the separation into the colors of the rainbow create nacreous clouds.
