Question

What is occurring with light waves to allow you to observe the color of your friends shirt

Answer 1

My guess is reflection

Answer 2

--  Light coming from somewhere shines into the place where my friend and I both are, and it shines on the shirt.  The light may have any number of different colors (different wavelengths) of light in it, but it definitely has some light in it of a color that the shirt does NOT absorb.

--  If there are several colors (wavelengths) in the light shining on the shirt, then the fabric and the dyes in the shirt absorb some of them.  The rest, which are not absorbed into the shirt, bounce (reflect) off of it.

--  Some of the light reflected off of the shirt finds its way into my eyes.  That's how I can tell WHERE in the room the shirt is, how BIG it is, and what SHAPE it has.  Also, from the wavelengths of light that come into my eyes, and which nerves in the back of my eyes are sensitive to those wavelengths, my brain forms an impression of the COLOR of the shirt.  

-- If it ever happens that the shirt absorbs ALL of the wavelengths that happen to be in that light, and there are NO wavelengths left to bounce from it into my eyes, then the shirt will look BLACK to me.