Waze is a separate app that people can report incidents on and I believe this info is shared on Google Maps as Waze icon alerts.
As for the traffic density colors on Google maps, that is purely a Google thing as best as I know and is based upon the travels of Android devices - I'm not even sure if you need your GPS turned on for Google to get good data as I've noticed that my location on my S3's Google maps is usually accurate within 20 meters in the city with the GPS turned off, that kind of non-GPS accuracy probably allows Google to get fairly good traffic data. I suspect that Google is not using bluetooth tracking of any kind - they're relying solely upon your Android device's location via A-GPS versus GPS (which is more accurate).
Basically and as best as I can figure it out, the telco's using A-GPS can pretty much narrow down where your Android device is within a few meters and because your Android device is always talking to the telco's network, Google can use this accumulated info on Google Maps. Apparently you opt in or out of sharing your travel data with Google under your phones’ Google maps settings - I haven't bothered because I find Google Maps Traffic to be quite useful and getting better all the time as more devices become active.