What are the different items rarity colors, and what do they worth at the PNJ’s

It depends on what you are looking for.

When I started playing, all I wanted was scrolls (wisdom and portal), magic and rare items. So I picked up pretty much everything and sold all the items I didn't care about.

Right now, I'm more looking for shards and orbs because I'd like to enhance my gear, and in order to obtain those, I have to follow the famous vendor recipes.
For instance, I need Armourers Scraps and Blacksmith's Whetstons which require superior quality equipment, and also Chromatic Orbs which require items with 3 slots of 3 different colors linked together. In addition of that, I also pick up blue stuff (4 or less slots, like ChrisHateZ said) and yellow/orange stuff when I can find some.

I identify everything before selling my stock because

1. Scrolls of Wisdom can be found super easily
2. You can get more interesting stuff by selling identified items (once again, check the vendor recipes)

So what should you pick up ? You should pick up what you need: powerful gear (blue/yellow/orange) and everything that might be necessary for one of the recipes you are following.

From the mechanics thread:

Increased Item Rarity Increased Item Rarity % modifiers increase the chances of an item being magic, rare, or unique. For example with a total of +100% increased item rarity, you'd get twice as many magic items, twice as many rares and twice as many uniques from normal enemies. This modifier has no effect on the number or type of currency items, scrolls, or gems that drop. When in a party, only the modifier from the player who lands the killing blow on an enemy is counted. If one of your minions gets a kill, the minion's IIR is added to yours and the total is used.

Magic, rare, and unique monsters have an Increased item rarity modifier for drops.