I usually start by just casting on holding both colors together, and then sperating them for my first row of knitting.
When you knit, as suzeeq said, you knit with one color and purl with the other. BUT make sure you carry both yarns together... so you bring them both to the front, purl with the one, take them both to the back, knit with the other. That's how the magic happens, and you will end up with 2 layers of st. st.
Intarsia, in contrast, results in a single layer with multiple colors knit in different areas.