The LED's (from Light Emitting Diode) emit light when they are connected to the electric current. There are LED's of different colors and power. They are arranged in a band that can be powered by a 12 volts source.
LEDs are very useful to help you distinguishing the position your drone in space during the flight, or to alert you about miscellaneous events (like it is possible on MikroKopter system: low battery, waypoint target reached etc).