Possibly a bit of PR propaganda making the most of community links, possibly a bit of the council telling the club stuff to keep them sweet?
The blue is far more likely to be due to the weaving trade and the famous 'Coventry Blue' (or 'True Blue') dye it produced. In fact, I'm pretty sure that's why we've played in blue over the years - the club adopted it from the city history rather than the city adopting it from the football club.
As for the 990AD date - not one I've heard before. I've heard 1043AD and I've heard 693AD for a nunnery set up by St Osburga, but never 990AD? Anyone remember anything for Coventry's millennial birthday in 1990? You'd have thought they'd have made something of it.