The round Rainbow Peephole uses a Diffraction Grating to split white light into a rainbow of colors.
A grating is an optical device that uses grooves to disperse light at different angles depending on the wavelengths, or colors, in the light like the image below.
A cool property of a grating is that it bends the light for many Orders, where each Order is dimmer that the one before it. The Peephole is a circular grating that can show the colors and orders of any light like the fluorescent lamp shown in the picture.
Warning: Do not look at the sun with a Rainbow Peephole!