Simply put, is because the game is always using a saturation of 1 on its color picker. Take a look at this image from Wikipedia:
Figure b is the one used in game, letting you select the hue and lightness, but S = 1. It just doesn’t look good on the units. Comparing two saturation values:
I think the easiest way to add saturation to the current game would be to make it so that when you click on the large color map, the right gradient updates to show the saturation values for the color/lightness you’ve picked. It would require two clicks for each color though.
What’s funny is that the fixed colors are all desaturated and look okay!