Set-PnPTheme -ColorPaletteUrl documentation and help states that it should be using the Site Relative URL.
When running Get-PnPTheme, the result shows the Server Relative URL for the color file:
ColorFile : /sites/sharepoint/_catalogs/theme/15/spdarkblue.spcolor
I instead used the Server Relative URL and was able to update the color file as expected
set-pnptheme -colorpaletteurl /sites/team site/_catalogs/theme/15/NewColor.spcolor
Per the written documentation and guidelines, when using the site relative URL, it should update the color palette that is being used.
No new color palette is being issued, it appears to be resetting to default color palette
Using Set-PnPTheme -ColorPaletteUrl /siterelativeURL/colorfile.spcolor
2.23.18 SharePointPnPPowerShellOnline
Same thing here :

Would be great if something was done, wether it's updating the code, or the documentation...
Hi Eric,
Thank you for reporting this. Indeed, that cmdlet was in dear need of a fix up. I've merged the fix into the dev branch
Hi Erin,
Setting the site background image has stopped working sometime since 2.22.1801.0.
I've had to roll back to use the following command:
Set-PnPTheme -BackgroundImageUrl /sites/_SiteAlias_/SiteAssets/SiteBackground.jpg
The command is accepted in the later version without error but the background image isn't applied.
Most helpful comment
Hi Eric,
Thank you for reporting this. Indeed, that cmdlet was in dear need of a fix up. I've merged the fix into the dev branch