The best way I can explain it and that helped me understand it is think of it like a different version of the American Fraternities. Albeit, without the hazing

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It is a way of you being both a part of the business school and the wider university system. When you go to events, some of those events will be specifically for the college you are a part of. Some of the schools only allow certain subjects etc to be a part of it and it essentially allows you to network outside of the business school.
I guess another parallel we could draw on would be the different Houses in the Harry Potter books haha. Though I could be wrong, this is how I understand it.