Over the past decade, rest-frame color-color diagrams have become popular tools for selecting quiescent galaxies at high redshift, breaking the color degeneracy between quiescent and dust-reddened galaxies. In this work, we study the U-V vs. V-J (hereafter “UVJ”) diagram by employing mock observations of cosmological galaxy formation simulations. Specifically, we employ the SIMBA simulations, which include an explicit, on-the-fly dust model that, when combined with 3D dust radiative transfer, allows us to robustly model the impacts of dust attenuation on galaxy SEDs. We show that these models broadly reproduce the observed UVJ diagram at z=1-2, though they fail to adequately populate the dusty star-forming region with V-J > 1.2. We show that this discrepancy primarily comes from the lack of high-mass (log(M*) > 10.5), heavily dust-reddened galaxies. Furthermore, the UVJ diagram selects quiescent galaxies well, producing ~90% (~80%) pure selections at z=2 (z=1). We show that contamination of our quiescent sample is driven primarily by transitioning galaxies, with main-sequence galaxies populating the quiescent region only if their SF is significantly dust-obscured. Finally, we explore the time evolution of galaxies in UVJ space as they quench. We find that some galaxies enter the quenched region on the UVJ diagram from below, as they experience a sudden decline in dust obscuration prior to quenching. In contrast, others enter the quenched region from redder colors, as their dust obscuration declines with their SFR.