The surface reading suggests a horse being led by an Earl, but the answer is Horse as in a GREY horse — a type of horse named after its colouring. The cryptic hint is that GREY, when "led by" (placed after) EARL, gives you EARL GREY, the famous flavoured China tea. So the whole clue works as a cryptic definition, with the "led by Earl" part being a nudge towards the tea connection rather than a literal instruction.