For hand-held weapons, the color of the weapon indicates its power.
For projectile weapons, the color of the weapon indicates the number of shots remaining in that weapon. As that number decreases, the weapon will change color; however, each color can "hold" for up to four shots, and seems to vary between weapons, so it can be difficult to tell exactly how many shots remain, but the maximum number of shots per weapon is approximately 16.
The Axe, Hammer, and Spear can be used in both hand-held and projectile combat. It's unclear whether using them as projectiles makes them weaker as hand-held weapons, but given that they change color when fired as projectiles, it seems likely.
The projectiles fired by the Holy Handgrenade and Wand explode on contact with a wall or enemy. Anything caught in the explosion will take damage, including the player. However, the Warlock isn't harmed by the Wand's backlash. Certain items confer immunity as well, e.g. the Magenta Ring, which displays the message "YOU ARE NOW AN APPRENTICE MAGICIAN" and makes the wearer immune to the Wand's backlash.
Every treasure except the Candlestick has eight potential values based on color, with Gray the lowest and Magenta the highest (prior to any color scrambling), increasing in fixed steps.
In order of value, least to best: