White... trash, sell it. Green, trash with stats. Check the stats and if there's nothing you want to use to add to a Red weapon, sell it. Blue, same as green. For armour, may be useful for a while. Purple, same as green, but this is the highest state armour can reach. Check the stats, since they're psuedo-randomly generated, but your best armour set is going to be made of purple items.
In the book, it says He created us to be just like Him. So if we're dumb, then God is dumb, and maybe a little bit ugly on the side. - Zappa
Colored-coded items in many games that have a loot system denote how rare and/or how good the item is. The basic progression of colors goes White (common), Green (uncommon), Blue (Rare), Purple (Epic), Orange (Legendary). Some games add other colors on either side of the spectrum (I.e. World of Warcraft has grey which is literally useless for anything except selling for money, and Borderlands has pearlescent items which were light-blue/cyan that were almost always the best and rarest items in the game), but for the most part it has become the standard in games (not just video games!) to show how good an item is.
Hope this helps on top of the other answers already given!
You said "add to a Red Weapon", what does that mean? I'm lvl 9 and running through places doing quests and I have yet to see anything that allows me to combine weapons...
I'm not actually positive if they're red but he's referring to Possessed Weapons.
You should be seeing one soon as I typically get my first one at around level 7. They're really good weapons (at higher levels especially) that you can give 4 (possibly 5, though I'm not entirely sure how to) stats to.
And by stats I mean Critical Chance, Critical Damage, Fire Damage, Defense, Strength etc...
Any weapon type can be a Possessed Weapon (Scythe, Hammer, Buckler etc...)