Harlequin creates a second genotype on your dergon, which is generated completely randomly, regardless of parents' genes or egg rarity. This second genotype appears in patches over the dergon, creating a patchwork effect of two different designs.

It will appear in the geno as an additional genotype and phenotype string, like so: 

Healthy- Harlequin
Ww/Bb/xx+c/Gn[+Ww/Bb/xx+cm/Gn]
Base with Gene + Harlequin Base with Gene

This second set of genes will have no passrate when the dergon is bred, without the use of an item to include them in the passable genes!

Harlequin's two genotypes should appear roughly equally, although the balance may skew to as much as 70%/30%. It does not matter whether the original geno or the harlequin geno is more visible. 

If a Color Mutation is present, Harlequin can generally show above or below the effect of the mutation (Variegation will always show above Harlequin, as it's an expression of pigment destruction). Harlequin may even allow two different color mutations to appear on different sides of the geno, if one is present on the original geno and another appears on the harlequin geno!