What this does is add a "meta key" beyond simply knowing the key. The meta key includes how the key is broken down into blocks. And the number of blocks is used during each round relative to the block length.
So if you know the exact key, but don't know how many blocks there are or how many bits per block, you wouldn't know that you had the entire key.
The whole color deal is a neat way to transport the key and the cipertext, but it isn't integral to the algorithm.
The actual algorithm can be succinctly described in 4 sentences.
I'd definitely like to have Bruce look at it, but I'm not sure how to convince him to check it out. If anybody here knows him personally and thinks this might be worth his time, please forward him this thread.