My current Bash prompt looks like this:
You may notice that I am six levels deep in a directory hierarchy (per the title bar) but that the prompt is still fairly manageable without taking up a whole line. I essentially abbreviate each folder above the current one to its first letter. If I need the full path, a) I have the titlebar, and b) I also have the pwd command.
I use this because sometimes I will have similarly-named folders all across my systems, but just want a bit of a hint in the actual shell as to where I actually am, again, without completely taking up a line (or more) in my shell.
Coloring aside, this is mostly accomplished with a small Perl script, pwd.pl, which cuts up the path based on slashes and appropriately abbreviates things. It also does some tilde substitution and ensures proper coloring when I am in a top-level folder such as /tmp.
Aside from the script, the other trick here was getting coloring to work in both the normal PS1 output as well as the output of the script which is evaluated in the prompt string. Hat tip to this Stack Overflow post which helped immensely. In short, all non-printable prompt commands such as color codes should be wrapped in \[ and \] to not count against column width so that lines wrap properly. In a sourced script, you will need to convert these directly to their equivalent \001 and \002 since Bash won't do it for you. So I do that in the Perl script. I use Perl since essentially every system will ship with it automatically (I say this as someone who has been using Perl for 25 years now).
Lastly, there are lots of other places to find out more about the color code aspects of Bash prompts.
This is what is in my ~/.bash_profile:
GRAY="\[\e[90m\]"
RSET="\[\e[0m\]"
PS1="$GRAY\h:$RSET\$($HOME/bin/pwd.pl)\$ "; export PS1