From a 2004 Stripes article on the Burning of the Colors:
The annual Burning of the Colors is a re-enactment of the actions of 2nd Engineer Battalion Commander Lt. Col. Alarich Zacherle at Kunu-ri, north of Pyongyang, on Nov. 30, 1950.
On that day the engineers were guarding the rear of the 2nd Infantry Division as it retreated in the face of overwhelming odds, under attack from five Chinese divisions.
According to the program for the ceremony, “Zacherle realized the 2nd Engineer Battalion would soon be overrun and unable to withdraw. In an effort to deny the enemy the Battalion colors as a war trophy, he ordered the colors to be burned.”
All but one officer from the 2nd Engineer Battalion was killed or captured in the battles around Kunu-ri. More than 5,000 American soldiers were killed, wounded or captured.
Go read the article.