TWO COLOR KNITTING
I'd like to reassure everyone that knitting with more than one color isn't hard. Really. Even if you are a new knitter you can do this. It is more a matter of training yourself on how to hold the yarns and how to read a chart.
Two color knitting (also called stranded knitting & Jacquard knitting - Fair Isle is one type of two color knitting) is different than intarsia or picture knitting. Two color knitting involves carrying the unused yarn on the back of the work (these carries are called floats and if they are too long you can catch your fingers or toes in them). In intarsia, the yarns are twisted around each other every time you get to a color change and the unused yarn is not carried along.
Many knitters prefer to knit with only one hand and simply figure out a way to hold both colors in their right or left hand, knitting English (throwing) or continental (picking). Supposedly Meg Swansen is a one-handed two-color knitter.
In two handed knitting you knit continental in your left hand and English in your right (if you are right-handed). The photo on the cover of the Starmore Fair Isle book shows what this looks like. I sat down with a sock project and just forced myself to learn how to do this method. It is quite fast and I like it because I think it takes some of the strain off my dominant hand.
About the only place your yarns can tangle using this method is at the beginning of a needle. I usually make an effort not to let this happen at a needle change because it can also be noticeable, especially if you're working with dpns. I usually put the skein of background color on my right side and the contrast skein of yarn on my left side to keep things straight as I'm knitting. If for some reason your yarns do tangle just grab the yarns about 2 feet from the project on the needles and let the whole project on the needles dangle and untwist itself.
Although a first two color project with bulkier yarns will go faster, the tension issues won't be as noticeable with smaller yarns and needles so I think a beginner's colorwork project should be done at a fine gauge.
I still occasionally have minor tension problems or puckering, especially in projects with longer floats. All you need to do in this situation is be mindful. If your knitting is puckering when you're knitting with more than one color, it means you are carrying the yarn not in use too tightly. You can remedy this by regularly stretching out your knitting on the right hand needle immediately after it is knit. Purposely knitting looser may also help you and good blocking can make a multitude of tension problems disappear. If your tension on a color knitting project is really bugging you, try switching to a different type of needle. I find this sometimes helps me.
By far the best online reference to knitting with more than one color was one done by Anne Featonby for the KBTH Virtual Conference. Anne's online class, Fair Isle 101, has lots of photos that show how to hold the yarn at every step of the process and how to catch long floats. There are even some great photos and info on steeks. Judy Gibson's Cyberclass on Two-Color Socks has lots of excellent info on colorwork. Her Lesson Two on Handling Two Colors has some photos also.
One thing a lot of new color knitters do not know is that it matters in which hand or how you hold each color. Whatever method you use, be consistent or it will be quite noticeable. The yarn you carry ABOVE (look on the back of your work) will usually be less prominent. See HERE for a better explanation and photos.
In Joyce William's Latvian Dreams she makes a case that how you hold the yarn doesn't always result in a certain yarn being held above or below - I don't know. I do know I always hold the main background color in my right hand and the foreground or pattern color in my left hand. Just be consistent.
In Carol Rasmussen Noble's Knitting Fair Isle Mittens & Gloves she says, "To achieve better clarity of pattern put the pattern yarn on your left hand and the background yarn on your right hand, because stitches made using your left hand are a bit larger and show off the pattern more."
The Philosopher's Wool method is a two-handed method that has you weaving in the yarns on back more frequently than you do with regular old stranded knitting. There is a book on the subject and some new knitters feel this method is easier to learn. I think every time you weave or catch a float on the back of the work you risk the color showing through on the front of the work so I minimize this as much as possible. But go with whatever method works best for you.
Some charts will occasionally require really long floats between colors. You can simply leave them long or you can "catch" them so your fingers or toes won't get caught on them when putting on the garment. I generally catch floats every five stitches. Judy Gibson has some information and photos on catching long floats HERE.
You will occasionally find rows in colorwork knitting designs where you have the dreaded three or even four colors per row. Dale of Norway designs are famous for this and I see a lot of them in Latvian mitten designs. I continue to hold the background color in my right hand and the other two colors in my left and just knit, although it is slow-going and yarns do become tangled. Some knitters prefer to simply slip any stitches with a third color and re-work the row a second time with the third color, slipping the first two colors, if they are working in the round. And some just knit with two colors and duplicate stitch in the third color when they're done.
It doesn't seem like any current knitting magazines or books ever discuss this subject. Fortunately there are several excellent older reference sources on the subject. For a good discussion on the different ways of holding yarns for knitting with several colors, you can't beat the illustrations in Anne Feitelson's The Art of Fair Isle Knitting. This book is becoming scarce fast so buy it now before it costs a billion dollars on Ebay. Alice Starmore's Book of Fair Isle Knitting also has some good info. KBTH, Norgeknit, and ASOFlives are online mailing lists you can join that are populated with knitters who do colorwork and can answer your questions as well.