Red is a color which has been adopted by the Norteños (also by the Bloods, although I wouldn't say they have much of a presence at all in the south Bay). They're also identifiable by "N" and "XIV" graffiti which is visible all throughout Northern California. They have a very strong presence around the Bay. The Rival gang, the Sureños, have adopted blue and grey as their colors, and use "XIII" as a distinguishing mark of their gang. Incidentally that's what "ese" means - it's a reference to a compatriot of the Sureño gang. Members of the respective gangs wear those colors to identify each other and to "rep" them. Norteño members commonly wear red sports jerseys and hats, such as Nebraska, SF 49ers, K Swiss, and just bright red t-shirts. Sureños commonly wear Dodgers paraphernalia, Rams, Padres, Cowboys, etc. These two gangs have a bitter rivalry with each other going back 30 or 40 years and violence between them isn't uncommon. Because both gangs recruit heavily and have a fairly strong presence in Morgan Hill most of the schools ban the wearing of colors affiliated with those two gangs. This stuff was banned at my Middle School too.
So yes, those are distinguishing marks of each gang, and as there is a fairly prominent gang presence both in Morgan Hill and around the bay, those colors are banned, so as to avoid instigating violence between members of them.
Various sports teams and jerseys have become associated with these two gangs, and as such are for the most part banned at Live Oak. Yankees caps, especially, stick out in my mind as something which was explicitly banned from my school.
