The yarn is dyed so that the colors blend from one to another, to create an abstract pattern. The pattern it creates will be different depending on how many stitches are in a row. One thing to be careful of is when your project has strong decreases, such as a sweater sleeve. The pattern at the bottom of the sleeve can look much different than the top of the sleeve, or the sweater base itself. Depending on the yarn and the style, this can look really good, or really bad. It's just something to watch.
Something else that needs to be considered when planning a yarn project, is that varigated yarns will dominate the eye.
The afghan to the right has an intricate cabling pattern on it. Yet, you only see that if you really look hard, because the eye is drawn to the colors. While it is less of an issue in person, it's still a distraction.
On the other hand, small quick projects are a great use for many varigated yarns. It keeps the items from look flating, yet takes no additional skill or time to make.
These are several sets of kitchen items I made for small gifts last year. Made from 100% cotton yarn, these were knitted up pretty quick, then a complimenting crochet border was added.
So the lesson is, when you want a more colorful project, without having to learn how to change colors, carry colors, or buy several colors for it, and the project has simple stitching, try a varigated yarn.