The jellyfish is essentially a wild tile. When involved in a match made by the player, the jellyfish will turn into the color that makes the largest possible match. Please note that only those jellyfish that could be part of the match will change colors when you make a move.
The jellyfish generally has the properties of a colored tile. It is destroyed by power tiles (for instance, if hit by the line clear from a lily), and it can be matched with the butterfly. Swapping a jellyfish with a butterfly will turn all jellyfish tiles into the color of the most prevalent color on the board.