Tools are the mechanic that replaced Charms from the last game. Instead of there being Charm Notches, there are Tool Slots that are specific to each color slot, being red, blue, and yellow. None of the crests come with all slots unlocked, and you must instead spend memory lockets to unlock one slot of your choosing on one of your crests. All tools have infinite uses, except the red tools have a limited amount of uses and must be repaired at a bench using shell shards to get all the uses back.
Red tools are a subtype of tools that are used as weapons as opposed to utility like the other types.
Red Tools can be upgraded in two ways. The first way to upgrade them is with a Tool Pouch upgrade that increases the amount of tools that you can hold at once. The Crafting Kits increase the damage output of tools.
Blue tool are combat-oriented utility tools that improve the way you fight in some way.
Yellow Tools are movement-oriented tools that are helpful for navigation or resource gathering.