The oblong shape is the recording pit, and it's 1.6 microns between the tracks. This would mean that there are 600 tracks in 1 mm. So, if I were to enlarge a single CD to the size of a Tokyo Dome (famous stadium in Tokyo), the space between the tracks would only be 1mm. The lights that are reflected between the tracks diffract, and the light refraction makes the disk look in different colors.
A diffraction grating is one of the optical devices that use these characteristics, and I would say a CD is one of a diffraction gratings that would come easy at hand.
If you observe a disk normally (having the light not on the line that goes through the middle of the disk perpendicular to its surface), you will only be able to see a band of rainbow in some places. But if you put the light on the line that goes through the middle of the disk perpendicular to its surface and look at the disk also from the same line the light is, you will be able to see a beautiful rainbow in a concentric circle.
The light and the eye being on the same line, the light that hit the same angle would look the same color. This is the reason why the rainbow forms in a concentric circle.
