When the distance between the drops is similar to the wavelength of visible light, the light that shines through the cloud droplets is diffracted and dispersed in the manner shown below. On a clear night, for example, the light you see coming from the moon is coning straight from the moon. However if a thin cloud layer is found between the observer and the moon, the diffraction and dispersion of the moonlight actually casts a light larger than the original light source. This 'crown' of light around the sun or moon is called the corona.
When the cloud droplets are very uniform in size, the diffracted light can cause the corona to be separated into its component colors, with blue light to the inside of the red light. These colors may repeat themselves, surrounding the moon with a series of colored rings, becoming fainter as each subsequent ring is located further from the moon.
Also, a combination of refraction, reflection and diffraction can combine to produce other optical effects such as glories and the "Heiligenschein" effect -- which is a bright area around the head of an observer's shadow on a surface containing spherical water droplets. Glories are the rings of illuminated light seen most commonly from plane's shadows as they fly over clouds of liquid water. In both phenomena, the light ultimately is bent close to 180° right back to the observer.
As a beam of light encounters a water droplet, it is refracted as it enters the droplet. Portions of the light are then internally reflected off the backside of the droplet. Before the light exits the droplet completely, it diffracts along the droplet's outer surface for just an instant as a surface wave before refracting as it leaves the droplet.