It does both.

I have a very Deep pool (11' 40,000 gallons) and the first 2 years I had no cover on it.

These last 2 years I've had a clear cover and I can state with certainty that it does indeed make a difference (no experience with other colors). ~10 degrees for me if I keep it covered every night.

I've noticed it helps a lot with evaporation which makes perhaps 80%+ of the heat retention. The water a few inches under the cover gets very warm but doesnt make a huge difference once you stir it up...especially in a deep pool.

I've also tried the liquid fish and those do help but only 2-3 degrees at most under optimal conditions. They do make stuff float on the surface a bit better which helps keep the bottom a little cleaner...but thats hardly a reason so use them.