Grayshirts sign a LOI, recruited in the usual manner, can take OVs, enroll in the fall but are promised scholarships beginning the next January. They can practice but not play.
Blueshirts are often from the general area and have visited the school unofficially on multiple occasions. They commit verbally and arrive in the summer ostensibly as a walk-on. Once football practice begins, they are awarded a scholarship. The school is allowed to count the scholarship forward — against the next recruiting class — but the player can play immediately. The big catch:
The student-athlete may not have been recruited, as defined by NCAA bylaws. That means no official visit to campus, no in-home visits from coaches, no signed National Letter of Intent or athletic aid.
Sometimes they are transfers from a community college or from a situation where they do not need to sit out a year after transferring (FCS, etc). Once on scholarship, they would count towards the eighty-five total, of course.
USC has five blueshirts that count towards their Class of 2016 count - three transfers and two who joined the team last fall.
We'll have to wait and see whether Michigan ends up with blueshirts who may have gotten offers from their "educational" football camps who've left with offers to which they commit - but they never take their Official Visits, nor have in-home visits from coaches - but who interact with them in the camp setting.