Total Edit: Effectively, you want \edef, which totally expands its contents before defining a macro. However, there is a hitch: latexdiff defines \DIFadd and \DIFend to print something involving colors, which is not really good material for parsing as text like you want to do. On top of that, it is careful enough to \protect them, and the whole point of \protect is to interfere with normal expansion. So trying to use \edef directly will give you an error (apparently, "TeX capacity exceeded").
What I do, then, is temporarily redefine these two macros to do what they "logically" do: include or ignore their contents. Since that shouldn't be a permanent change, I do it in a group, and this necessitates that I use \xdef, the global version of \edef.
The way this little program works is that it grabs the material between dollar signs like your \RCS does, but then feeds it to \edef to produce an expanded text \expandedRCS. It then places the contents of \expandedRCS after another macro, \innerRCS, that does what your \RCS used to. \expandedRCS is created in a group as explained above, but once it is defined I no longer need the new definitions of \DIFadd and \DIFend, so I can (and should) expand \innerRCS outside the group.
Here is a complete document. I've included the latexdiff preamble for verisimilitude.
\documentclass{article}
\def\RCS$ $#1$ ${%
{%
\renewcommand{\DIFadd}[1]{##1}%
\renewcommand{\DIFdel}[1]{}%
\xdef\expandedRCS{#1}%
}%
\expandafter\innerRCS\expandedRCS
}
\def\innerRCS#1: #2 {\expandafter\def\csname RCS#1\endcsname{#2}}
%DIF PREAMBLE EXTENSION ADDED BY LATEXDIFF
%DIF UNDERLINE PREAMBLE %DIF PREAMBLE
\RequirePackage[normalem]{ulem} %DIF PREAMBLE
\RequirePackage{color}\definecolor{RED}{rgb}{1,0,0}\definecolor{BLUE}{rgb}{0,0,1} %DIF PREAMBLE
\providecommand{\DIFadd}[1]{{\protect\color{blue}\uwave{#1}}} %DIF PREAMBLE
\providecommand{\DIFdel}[1]{{\protect\color{red}\sout{#1}}} %DIF PREAMBLE
%DIF SAFE PREAMBLE %DIF PREAMBLE
\providecommand{\DIFaddbegin}{} %DIF PREAMBLE
\providecommand{\DIFaddend}{} %DIF PREAMBLE
\providecommand{\DIFdelbegin}{} %DIF PREAMBLE
\providecommand{\DIFdelend}{} %DIF PREAMBLE
%DIF FLOATSAFE PREAMBLE %DIF PREAMBLE
\providecommand{\DIFaddFL}[1]{\DIFadd{#1}} %DIF PREAMBLE
\providecommand{\DIFdelFL}[1]{\DIFdel{#1}} %DIF PREAMBLE
\providecommand{\DIFaddbeginFL}{} %DIF PREAMBLE
\providecommand{\DIFaddendFL}{} %DIF PREAMBLE
\providecommand{\DIFdelbeginFL}{} %DIF PREAMBLE
\providecommand{\DIFdelendFL}{} %DIF PREAMBLE
%DIF END PREAMBLE EXTENSION ADDED BY LATEXDIFF
\begin{document}
\RCS$ $Revision: \DIFdelbegin \DIFdel{1.2 }\DIFdelend \DIFaddbegin \DIFadd{1.8 }\DIFaddend $ $
Revision \RCSRevision.
\end{document}