Be an independent Duke, King, or Emperor with atleast 500 gold
Be neighboring a wilderness province, Dwarves have special rules and can only colonize mountain provinces or territory neighboring mountains.
Have atleast 1500 people in your capital
Colonization is now a title diplomacy, accessible by right clicking on the county title.
If you meet the above conditions, the colonization button should be enabled and you can click it.
Sidenote* This took nearly an hour to put together >>