I saw this idea at Family Fun last month and kept meaning to try it. We finally did it recently and it turned out so well!
Basically, you just freeze colored water in an ice cube tray and then fill a round cake pan half full of water. Insert a paper cup that’s filled with water in it. Freeze for an hour and then put in the colored ice cubes and finish freezing (they’ll melt too much if the water is not already really cold). When it’s fully frozen, unmold it and pop out the cup. Tie some ribbon in the hole and hang outside. Voila!