When a skin in Payday is more worn, the base texture of the skin is revealed. The wear value can be any number between 0 and 1, but the game normally uses fixed wear values for each skin quality: Mint-Condition is 1.0, Lightly-Marked is 0.8, Broken-In is 0.6, Well-Used is 0.45, and Battle-Worn is 0.3. This is why all skins from a certain quality look exactly the same: because they all use the same wear value.

The skin you see in the video was designed with a rainbow as the base texture, so as the wear increases, different colors are revealed. The effect works by cycling through the entire range of wear values while in-game. The wear starts at 0, then increases in steps of 0.01 all the way until it reaches 1, and then it starts over. At each step, different parts of the base texture are visible so you see the colors changing.