and his mental afflictions may prevent him from growing or working towards something meaningful. His random bursts into jingles show how childlike his mental state is and the flashing colors show his warped views of reality.
the flashing colors are not necessarily seen by steve, they are seen by the viewer. and the music is not necessarily something that steve is actually doing or taking part in, it is just a device for the viewer. think of theatrical musical productions. the characters break into song, but are we really expected to believe that the characters spontaneously sing songs that seem pre writen, about their lives, and it is already fully rehearsed and harmonized with multiple characters taking part, AND with musical accompaniment coming from seemingly nowhere?