Case hardening at the industrial level is done in a carburizing atmosphere. Carbon monoxide is one, but they mix in other things to improve the speed of carbon diffusion into the steel. You might think charcoal or some other form of pure carbon would be a good idea, but it actually is very slow to diffuse into the steel when it is pure; it needs transport. The oxygen in carbon monoxide is apparently reactive enough to glom onto the steel and let the carbon diffuse in. The diffusing carbon then donates its oxygen atom to another carbon monoxide molecule to become CO₂, which, having a higher molecular weight than CO, then sinks to the bottom of the carburizing oven, where it can be bled off.
This link shows a huge object with a 1/4" deep case. Enough heat in a carburizing atmosphere for a long enough time is mainly what you need to accomplish that, but Kasenit and that sort of thing heated briefly with a torch might get 0.002-0.005" deep or so, depending on the steel. Case depth is all about time, temperature, and the source of the carbon. Traditional color case hardening used horn and hoof and leather scraps, the latter being wound in strips around the steel to produce a particular pattern. Some bone meal and other such stuff were used for packing, too, but the organic materials apparently do better about carbon donation, and thus were the important elements.
The colors are caused by oxides, and while they don't fade in the sun, neither are the oxide layers deep, so they wear off the same as bluing does.
Usually, the reason to use case hardening is to combine an elastic, crack-resistant core with a hard, wear-resistant surface. During the transition of the Springfield '03 from eyeballed tempered steel to nickel steel, for a brief period (something in the range of a million receivers, maybe, but don't quote me on that; look it up instead), they used double-heat treated case hardened steel. This process takes advantage of the fact very high-carbon steel has a lower austenitic temperature than mild steel, so it will quench hard at a lower temperature. This allows the part to be carburized at the mild steel quench point (usually around 1600°F), quenched so everything is hard, then reheated to around 1300°F to anneal the core and quenched again. The 1300°F temperature hardens the carburized case file-hard. It would then be heated to around 350°, IIRC, to prevent the case from stress cracking. The result of this "double-heat treatment" process was a strong, non-cracking part with a glass-hard surface. By all reports, these were the smoothest operating Springfield actions ever made.
Hatcher's notebook has the process details, should anyone be tempted to pursue this sort of work. However, I think for color case hardening, in order to preserve the oxide pattern, the steel is simply reduced directly to the quenching temperature of the outer case before quenching, as old guns didn't require any temper to remain in the core steel. But, again, don't quote me on that. Research it yourself.