There is more to picking a book than a readability level. You just have
to take into consideration the interest level.
AR is not an easy program to understand or implement correctly. There
are many ways to choose books, but not all of them are the best way to do
so. The "basics" aren't all that complicated, but those kids who fall
outside the norms can be difficult to place in books and serve well.
As far as color-coding the books or sorting them by "grade level", that's
not best practice. Imagine that you were a 7th grader who was reading
three years below grade level. It would be rather embarrassing to have
to go to the 4th grade book section or walk around carrying a 4th grade
book. And I've seen students who weren't able to use a library properly
because they thought the books were supposed to be organized by book
level.
