The smallest insert will give you the lowest possible FPS. Even if you max out your PSI to 280 with that insert, your FPS will be at indoor field levels. I use the green and haven't had a reason to change it. Some people use the blue when they get a 360 QEV. The silver is meant for indoor arenas, so don't use it if you're outdoors and stuff.
Yup, you pretty much nailed it.
The way it works is, it changes te volume of air inside your marker. The thinner the insert, the greater the volume of air can be stored before shooting, thus yeilding higher FPS, and vice versa.
And yes, I guess technically you would get better efficiency from the silver insert, but it's just like making your marker shoot at a lower FPS, you will use less air, but your FPS is going to be really slow.