Most true Fair Isle is knit in the round, using the colors (usually only 2) all along the rounds.
For back-and-and forth Fair Isle knitting, again both yarns are usually used unless there is a color change for that row of one of the yarns. Don't cut any yarns unless you're done with it for a while. If it looks like a color will be used again in a few rows or rounds, you can carry it up the side to save yourself ends to weave in.
I just took a peek at your book and from the cover it looks like traditional Fair Isle.