STEP ONE - KNITTED 2-COLOR BRAID
Knitted braids are beautiful and they get easier the more often you do them. They don't curl so they are an excellent alternative to ribbing for a hem. The braid here is just a basic braid but there are many fun alternatives. Check out the excellent book Folk Knitting in Estonia by Nancy Bush (one of my top five favorite knitting books!) for some more advanced braids - I think she even has a 3 color braid.
There's usually a set-up row - in this case I did K1 Color A, K1 Color B, and on across the row.
STEP ONE: You take both yarns and hold them IN FRONT of your work as if to purl. Take the Color A yarn and pull it UNDER the Color B yarn and purl one stitch. Then take the Color B yarn and pull it UNDER the Color A yarn and purl one stitch. Repeat these two steps across the row as shown in the video below.
You are purposely twisting the yarns in Step One. Any time in knitting when you are purposely twisting two or more yarns you need to regularly run your fingers between the two yarns (as seen at the end of the video below) and push the twist as far away from your needles as possible. If the twist gets too close to your needles it gets tough to knit.