For anyone who is yet to read how the Console AI works, this was a forum post from Feb explaining how the new AI functions differently from the current PC/Old Console AI code.
Just to explain how the sliders work, during each turn, the AI will determine what priorities each gem is worth depending on the troops on either team. Mana colors that you require is prioritized more over one that you do not need. Mana colors that the opponent has is prioritized over Mana colors that no one has. And Skulls in general is prioritized slightly higher than any Mana color. That is a simple overview of how the Mana Color Priorities function.
The Sliders directly modify these numbers via multiplication, where the middle is default, and is multiplied by 1 (effectively changes nothing from the AI’s priority mentioned above). Pushing the slider to the right will effectively increase the priority of the AI picking that mana color, and since it is multiplication, it has considerable effects on the scoring. This is similar with decreasing the slider to the left, where the priority is now a fraction of what it recommends. This is a simple overview of how the Defense Gem Priority sliders work.
From the forum post provided above, each spell is also given a priority. This priority is generally higher than skull matches, but that is all dependent on what steps that spell has (e.g. summoning a troop with a full team is pointless, so that lowers the priority of the spell, where if there is room to summon, it has a higher priority). As mentioned by @Strat, when colors are involved in spells, the priorities above will determine the priority of that spell (e.g. exploding a gem. If there is a spot on the board where exploding the gem is beneficial, meaning that those prioritized gem values above are taken into account, then that will change the priority of the spell to cast in either a positive or negative way).
Taking all the above into account, spells and moves can now be quantifiable on the same scale (using priorities). Before, this was not the case, like where the AI could have an awesome spell ready to cast, but ignore it because there is a skull match. This means that changing the slider will change the AI. Changing the slider to MAX will now MULTIPLY into gem matching, meaning it could also be preferred over casting spells, or may even still try to match that Gem Color when it is not needed.
Basically, it is recommended to NOT put the sliders to MAX or MIN, but to give more subtle movements to them. But, there may be cases where you want to completely ignore or favor certain gem colors, hence why we provide the option, but I would still recommend to keep it close to the middle, as that is the recommended priority for each gem (using the statement from the first paragraph of this section).
TL;DR - Gem Priorities affect what gem matches are made by using multiplication. Using Extremes (low or high) WILL effect what the AI does, including when it should cast a spell or take skulls.