I can never remember how to do this, or find the instructions when I'm looking for them. Here are notes I copied up from a project I can't now find on Knitty. (Yes, the primary purpose of this blog is to get me organized in some sort of fashion...)
You may want to do the famous "jogless join" to avoid that little "step" that happens when you switch colors while working in the round. To do this, work one round in the new color. On the first stitch of the second round, pull the stitch below that first stitch (in the old color) up onto the left needle and knit it together with the stitch in the new color. Keep knitting in the new color. Lovely.