Yeah, I never got why people have always said that ("light colored substrate washes out fish color").
I have used light colored sand for a long time and I have some of the most colorful fish specimens (though that is also due to a quality diet and good health overall).
People say fish colors stand out over a black background/substrate, which is true (also true of colors standing out over white backgrounds), but the fish's colors darken/blacken to better blend in with the dark environment (defense mechanism to be less noticeable).
But in regards to safety against light or dark colored substrates/background, fish do feel safer against darker areas, since they too are more visible in lighter (both illuminated areas and light colored background) areas (especially when being weary of predators from above, out of the water). But in a aquarium environment, safe without predators, fish can still feel safe against light backgrounds and they don't fade (maybe at first until they settle in) despite what others say, but the darkening of colors against black backgrounds does happen regardless (safe, without stressors. Apparently just a automatic defense mechanism).