Lots of enlightening interpretations of Joanna Newsom's Colleen at SongMeanings. And also, this:
Its simply a fairy tale.
Yes, it has many layers of meanings that will honestly never be agreed upon. But that is what songs and fairy tales thrive on, each person's interpretation.
So my solution is to not overanalyze and try to pick apart this masterpiece, instead let it wash over you as a lullaby of some sorts.
This is the kind of passiveness I think destroys the soul of the song.