Since purple light has the highest energy on the visible spectrum, does the idoine in water absorb less energy (making it appear brown)?
I think you might still be confused. Iodine (I
2) in hexane does not absorb blue/purple light. This is why it looks blue/purple. What we see are the wavelengths of light that are scattered, reflected, and transmitted rather than the ones that are absorbed. When iodine is dissolved in water, the absorption peak shifts from around 525 nm to about 450 nm (based on looking at spectra published in
this paper, which you may not be able to access). This means that it absorbs a lot more blue wavelengths and transmits a lot more in the green/yellow/orange/red range. Why this looks brown to the human eye would be a complicated question to answer since (as mentioned above) perception of color depends as much on eye and brain physiology as it does on molecular physics. The color also is fainter in intensity because iodine is not very soluble in water, so there isn't much there.
What decides what wavelength of light an object absorbs? Is it the gap size between energy levels, although in a previous post someone mentioned that just being floresence?
Gaps between molecular or atomic energy levels determine both wavelengths of light absorption and wavelengths of light emission (fluorescence). Absorption and fluorescence are (kind of) opposite processes. It's like the difference between walking up and walking down a hill. The energy you gain or lose is the same whether you are walking up or down because the energy states at the top and the bottom are identical.
The electronic energy level spacing is determined by: electronic configuration (how many electrons, what orbitals they are in, and what their spins are) and nuclear core charge for isolated atoms and the electronic configuration, nuclear core charge, and arrangement of atoms in space for isolated molecules. In condensed phase (solution), nearby solvent molecules also play a big role.
More detailed information than this really requires a deep understanding of quantum mechanics.
And finally, why does iodide become colourless?
Comparing the properties of iodine (I
2) to iodide is a little like comparing the properties of a banana to a porcupine. One is a single-nucleus charged atom (ion) and the other is a diatomic molecule. The somewhat trivial answer to your question is that iodide is colorless because none of its electronic transitions are in the visible part of the spectrum. Some ions are colored, some aren't, just like molecules.