It's really just a hijacking of a generic term to describe a specific effect. In this case, the the full description should be "the use of colour modulation to simulate the effects of light and shade on a three dimensional object", but that's a big mouthful so they've simply shortened it down to "colour modulation".
At its most basic level, modulation in relation to painting simply means varying the tone of a colour. This has been used (eg. highlighting the centre of a panel while leaving the edges slightly darker, ie. creating a gradation of the base colour) by many modellers long before the term "colour modulation" became popularised with a specific meaning. If you're adding white to a colour to make it lighter or black to a colour to make it darker, then you are modulating that colour.
You may also come across the term "mapping" where successive layers of varying tones are applied over the previous in ever decreasing irregular patches. This is yet another example of modulation but of course, it has its own particular buzz-word attached to it to make it sound super-special.