Pope Smoke Colors!

*ahem*

The Truth of the Pope's colored smoke is this: Cardinals use ballots to elect the new pope. After every vote, one the ballots are counted, they are taken to a stove in the Sistine Chapel and are burned. The smoke from the stove is visible from St. Peter's square. If the vote did not garner a new pope, the ballots are burned with a chemical that turns the smoke black. It used to be that wet straw was used, but it was not reliable enough. If the vote has been successful and there is a new pope, the ballots are burned alone, which produces white smoke.

Sources:
http://en.wikipedia.org/wiki/Pope#Election.2C_death_and_abdication
http://www.newadvent.org/cathen/04192a.htm