The LIGHTS part of the Wraith Prism cooler unit was designed for flexibility. To start with, your understanding is correct. the plain RGB system (uses a 4-pin connector and a 12 VDC power line) can do a huge range of colours, but at any one moment ALL of the lights will be the same colour. The more complex ARGB system uses a 3-pin connector (looks like 4 were there, but one removed) with a 5 VDC power line. Its lighting nodes all are controlled separately, so at any moment there can be MANY different colours along the strip of lights. Because the latter system has more flexibility in what it can display, it is possible to make it do the much simpler displays that a plain RGB system can do.
The Wraith Prism cooler system actually has the more complex ARGB lighting system in it, BUT it has two different input systems to allow you to use either type, depending on what your mobo has available. For this it comes with three cables and sockets. ONE cable just connects to a PSU output for power. One cable and socket are for the 4-pin plain RGB lighting system. IF you plug that into your mobo' plain RGB header, the Wraith system accepts those signals (generated by the software utility supplied by the mobo maker) and arranges to have it lights do those patterns, but not any more. Alternatively, you can NOT plug that cable in, and instead plug in a different cable with 3 wires that goes to a mobo USB2 header. Then you must download and run a software utility supplied by AMD or their partner, Cooler Master. That utility is used for control of the Wraith lights via the USB communcation port. Its instructions are used by the actual ARGB Controller inside the Wraith unit to display all the complex patterns a real ARGB system can do.
The intention is that you will connect only ONE of those systems - EITHER the 4-pin plain RGB controlled by a mobo software utility, OR the ARGB system controlled by other software that communicates its instructions via USB2. From your description, it appears that you have plugged in BOTH of those cables and are running the AMD software tool so that it displays the complex ARGB lighting patterns. But you should NOT have that other 4-pin cable connected from the Wraith unit to a mobo plain RGB (4-pin) header.