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Within Magento you have the option to do the following.
1) create a configurable product and a number of simple products to attach. This will give you the dropdown option (e.g. small/large/XL). With this you will have to upload a number of images (e.g different colours) to the first configurable product. This will allow your customers to view all colours below the main product image.
2) you can create individual products for each colour.
Can you make it so a user selects the style of shirt, and based on the style shows only specific colors, and then certain sizes? So there might be 20 types of shirts, and each shirt has 1-30 different color options and 1-6 size differences. Is this possible?