It's far less rare in Europe than the US (which makes sense, since it was never released here). I have two, paid $100 for one of them, and $50 for the other. Neither are boxed (boxed one in mint box would probably be around $300-400ish...) I know several collectors that have one (or more).
As for how it works, the cartridge contains an LCD panel and some connections. The console itself contains the CPU as well as controls and the batteries. This means that all the games are pre-programmed into the console, and some combination of crossing connections in the cartridge part determine what game is played. That also means that no new games could be written for the system (although additional games with creative use of the LCD could be made, using the same programming I suppose... but it never lasted long enough). Light shines through the LCD and reflects the image into an angled mirror (like the Nintendo Game & Watch tabletop games). There should also be an adapter that goes around the joystick to 'lock' it into only going two directions (for games that only needed two directions: left/right or up/down), and a little metal tool for removing this adapter. This would be stored in the small extra space in the battery compartment.
I believe the manufacturer is actually Romtec, and they licensed it to other distributors in various markets. Romtec, Bristol and Bazin are the most common (I have Romtec and Bristol).
I have pictures of the inside of a cartridge and the system at the bottom of the page here:
http://www.handheldmuseum.com/Romtec/Colorvision.htm
if you want to see what's actually in it...
I can bring one to CGE if anyone actually wants to see it in person (or even play it...)