Let me preface this by saying I never imagined writing any sort of knitting tutorial from which other people can actually better their knitting skills. I've learned a lot from the other knitting craftsters here, so I wanted to contribute the knowledge I've gathered because I'm grateful to others who took the time to do the same.
So on with the mostly pictorial tutorial...
This is my example:
I used the graph I made up for my Disney scarf in this tut since it's the most recent one I've worked on. I like Caron simply soft for these scarves and a size 9 circular needle. The circular needle is for no reason other than I don't like the ends of needles poking out all over the place and I am quite good at losing needles. I have to make a conscious effort to keep all my dpn's rubber banded together. This size needle and the simply soft make a really soft scarf, and since it is two layers it insulates heat better.
I searched google for a knitting graph and downloaded it. http://incompetech.com/graphpaper/asymmetric/
I knew stitches were rectangular but not which direction. Turns out they are wider than they are tall. I think. At least they are in my graph and it worked out pretty well. So here's my graph for the Mickey head.
I used the long tail cast on method with both tan and brown held together. Make sure your colors alternate. Cast on 20 for this graph.
When you get to the end of your row, turn. Hold the loose end and the ball of yarn ends together and make a couple stitches. Don't cut the loose ends yet. To make these stitches you're going to knit then purl. I am knitting tan and purling brown. If you do this it will give you a solid tan on one side and solid brown on the other. I like to hold one strand in each hand so they don't get tangled and I can keep consistent tension on both strands. Important!: Your first stitch is always knit. Tan is the first loop, so tan is a knit stitch.
When you get to the end you'll have tan all the way across.
Also Important!: When you get to the end of a row, turn. Now you're looking at the brown side. Twist your two yarns together so the ends of the rows stay together. Always twist counter-clockwise for a consistent edge. This looks better than clockwise and much better than doing both.
Pull your strands tight-ish (not super tight) and you will have brown on top and tan on bottom. You brown is now the knit and tan is the purl. Notice the first loop is brown? Good. Knit and purl across until you get to the other side. After you pass the doubled loops from your cast on you can cut the strings off.
Now for the fun. Continue knitting and purling until you have your desired length. I just did the two rows. On the graph I have eight blank spaces, four shaded spaces, and eight more blank spaces. Each space represents both a knit and a purl stitch. So knit and purl eight times, ending with a purl. Now you will purl the next stitch, bringing it to the front. So you will purl, knit for four spaces. You ended with a brown knit, and you will knit a tan stitch to get tan back to the front. Whatever color you knit will show on the side which is currently facing up. Continue to knit, purl across.
Turn your work and twist your strands counter-clockwise. Knit and purl the next row, giving you this.
Follow the graph until you get to the end.
I did two more solid rows of knit,purl and then did my bind off. The only difference between this and a single color bind off is holding both tan and brown together again, and picking up one of each color as a single stitch.
Finish and you're done! There, that wasn't so bad. Please let me know if anything is unclear, and definitely post what you make. I'm excited to see a bunch of double knit projects on craftster. Now go double knit!