Holi is meant to be a happy ritual, I agree. But what is the historical context behind this whole ritual, and what do the colors represent?
Baby Krishna transitioned into his characteristic dark blue skin colour because a she demon Putana poisoned him with her breast milk.
In his youth, Krishna despairs whether fair skinned Radha and other Gopikas (girls) will like him because of his skin colour. His mother, tired of the desperation, asks him to approach Radha and colour her face in any colour he wanted. This he does, and Radha and Krishna became a couple. The playful colouring of the face of Radha has henceforth been commemorated as Holi. (Source:Wikipedia)
That's what the origion of holi is and in Braj region of India, where Krishna grew up, the festival is celebrated for 16 days (until Rangpanchmi) in commemoration of the divine love of Radha for Krishna, a Hindu deity.
: Lynn Peppas (2010), Holi, Crabtree Publishing, ISBN 978-0-7787-4771-0, pp. 12–15
: R Deepta, A.K. Ramanujan's ‘Mythologies’ Poems: An Analysis, Points of View, Volume XIV, Number 1, Summer 2007, pp. 74–81
They imitate Krishna's pastimes.
The powders are supposed to be auspicious and well-scented substances like sandal, musk, turmeric, kunkuma and aguru covered with lacquer to form balls that dissipate upon impact. They are supposed to be thrown with love and create bliss in the target. This is how Krishna is playing with the gopis, but the modern imitators might have different standards.
Shri Garga Samhita Canto 4, Volume 2, Chapter 12
Text 14shrikhandiguru-kasturi-haridra-kunkuma-dravaih puritabhir dritibhish ca samyuktas ta vrajanganah
The girls of Vraja carried sprinklers filled with water mixed with sandal, aguru, musk, yellow turmeric and red kunkuma.
Text 15rakta-hastah pita-vastrah kujan-nupura-mekhalah gayantyo holika-gitir galibhir hasya-sandhibhih
With red hands and yellow garments, and with rowdy songs and laughter, they sang about the glories of Holi.
Text 16abiraruna-curnanam mushtibhis ta itas tatah kurvatyash carunam bhumim dig-antam cambaram tatha
Throwing fistfulls of red powder, they reddened the sky, the earth, and all the directions.
Krishna is infinitely rich, has no formal obligations towards anyone and is not limited in time or in any other way. The sole purpose of his existence is to enjoy, so why not? Holi festival is a sutable way to express love and amuse themselves. It is similar to cake throwing in the western movies. Krishna might as well be throwing gold and diamonds, but those substances are not so pleasing upon impact. At other festivities they also throw butter on each other.