How does "elemental" damage on weapons work with elemental skills?

Solution 1:

Bonus elemental damage is overridden when using a skill that does damage of a particular specified element. You still receive the damage bonus, but it is no longer of the element specified by the item.

For example, if you have a weapon that does 20-40 damage, and a bonus of +4-8 Fire Damage, and use an ability that does 100% Weapon Damage as Lightning Damage, you would do 24-48 lightning damage with that ability.

If the ability does not specify a particular damage type, then it will deal damage based on your weapons inherent damage type.

Solution 2:

The +1-2 Holy damage only applies to basic attacks (When you're out of arcane power).

However, that extra damage IS still factored into how much damage your spells do:

On the character inventory screen, underneath the stats, will be a number next to "Damage".

This value factors in your character's primary attribute as well as any buffs or other modifiers currently affecting them.

This value is the baseline for spells that do %weapon damage.