Carrying different colored yarns as you knit is a common technique used in Fair Isle knitting, which involves alternating between two colors every few stitches. Also known as stranding, carrying the unused color behind your work allows you to pick it up easily the next time you need it. Stranding also allows you to change to a new color without cutting the old color and leaving an end that must be woven in later on.
Knit until you come to the point where you want to add a second color, or follow your knitting pattern until it instructs you to change colors.
Bring the new strand of color up from under the old color and wrap it around your needle to complete your next stitch.
Continue knitting until you need the first color again.
Drop the second color you were using and pick up the first color from the back of the work if you are on a right side knit row, or from the front of your work if you are on a wrong side purl row.
Pull the stitches on your right needle apart a little to space them out. Stretching the stitches like this helps prevent you from pulling the next stitch and the carried yarn too tightly and bunching the fabric.
Complete the next stitch with the new color and continue on until you need to switch colors again.
Repeat steps 4 to 6 to work with two yarns and carry the unused yarn along the wrong side of the work.
To work more efficiently with two colors, you can hold one color in your left hand and the other in your right instead of dropping each color after you use it. Knit the strand from your left hand in Continental style and the strand held in your right hand in English style.
If you need to carry the second color for more than half an inch (or about five to seven stitches), this will create a very long strand or "float" on the back side of your work that can sag and cause your stitches to loosen. You should anchor the float on the back side every few stitches by wrapping the strand of the first color around the second color before you make your next stitch. This way the first color crosses over the float and holds it firmly against the back of your work so it doesn't sag.