The colored pencil is a relatively new art medium, only making it's appearance in the early 20th century. It is still struggling to be recognized as a fine art medium.
Pigment is the operative word here. It is what makes the colored pencil a fine art medium. Acrylics, oil paints, watercolors, pastels, all art mediums have pigments. The technique used in colored pencils; layering and blending, also qualify this tool to be included in the fine art family.
The wooden case protects a narrow pigmented core. This core is made of either wax-based or oil-based pigment, additives and binding agents. The concentration of the pigment will determine the grade of the pencil. A higher pigment concentration will result in a professional grade pencil, lower concentration will be a student grade.