What are the prisms?
A prism is a specially shaped crystal. For instance, when sunlight passes through raindrops then appears a rainbow. The raindrops act like tiny prisms. They bend the different colours in white light, so the light spreads out into a band of colours that can be reflected back to you as a rainbow (red, orange, yellow, green, blue, indigo, and violet).
Why is the sky blue then?
When the sun’s light reaches the Earth’s atmosphere it is scattered ‘dispersed’, or deflected ‘curved or bent downward’, by the tiny molecules of gas (mostly nitrogen and oxygen) in the air. Because these molecules are much smaller than the wavelength of visible light, the amount of scattering depends on the wavelength. This effect is called Rayleigh scattering, named after Lord Rayleigh who first discovered it. Shorter wavelengths (violet and blue) are scattered the most strongly, so more of the blue light is scattered towards our eyes than the other colours.
Why does the blue fade towards the horizon?
The reason, why the sky looks lighter closer to the horizon, is because the light from the horizon has had further to travel through the air and so has been scattered and rescattered. The Earth’s surface also plays a role scattering and reflecting this light.