In addition to the iridophores, there are also the more boring leucophores, which are just masses of white stuff, more or less, that provide sort of a background, diffuse reflection of the color that's around.
Although red light certainly drops off rapidly, there is still a significant amount of it at the depths that a lot of octopus and cuttlefish live-- certainly it's a factor in tidepools and reefs down to 50 feet or so, although even there it's attenuated. I always like to bring a small flashlight when diving, even during the day, because even at shallow depths, shining a white light can often reveal things that are very hard (for human eyes) to see in the natural light-- of course, that's probably both from the camouflage being optimized for the natural light levels and because human eyes are optimized for the spectrum of sunlight outside the water (which the flashlight tries to emulate).