Both could be used but I think "range" is better because the point is to emphasize that there are big differences. My italki teacher has all kinds of students. They range from absolute beginners to native speakers needing help writing their university papers. ('vary' wouldn't work here) The rooms in my house are all painted different shades of white. They vary in color from pure white in the basement to a white dove in the family room. ('range' could be used, but I think 'vary' is better) I think both words could be used in your example on the theory that color is a minor property and all differences of color are 'variations'. But since 'gray' and 'bright red' are opposite extremes, I think 'range" is better.

In natural conversation you can use either, but I think I agree with P.G.

Ranges

I hate thse tests. In everday usage both are fine. For a test I would put varies.

"Varies" is related to "variety," so "varies" would be used here. The newly made Mercedez Benz series, according to the latest journal, varies in color from grey to bright red. OR The newly made Mercedez Benz series, according to the latest journal, comes in a variety of colors, from grey to bright red. "Ranges" is usually used when measuring something with numerical value. For example: In the winter, the temperature ranges from 10 degrees to 20 degrees. OR In high school, the ages of the students range from 13 to 18. BUT "Vary" can be used in these instances also. In the winter, the temperature varies from 10 degrees to 20 degrees. OR In high school, the ages of the students vary from 13 to 18.