Watercolors can be used either thinned from the tube or pan just a little bit, for strong colors, or thinned a lot for a lighter effect. They are not waterproof! If you make a mistake while painting in watercolor, you can wait for the spot to dry thoroughly, and then take a stiff, damp brush and scrub the spot out carefully, taking care not to damage the paper. Depending on what color you were using, you may find that it has stained the paper in the spot, and no amount of lifting will remove all the color. Watercolors can be cleaned up with regular soap and water. If you want to work on top of pen and ink with your watercolor, make sure that the ink you use is waterproof. If you want to be able to lay layer upon layer of color, without disturbing previous layers, you may want to look into a liquid acrylic (see the pen and ink section) instead, as it will give similar results, but because it dries waterproof you will be able to paint subsequent layers without redissolving the previous layers.
Watercolors, like acrylics, come in different qualities. The student quality is usually not as concentrated or as pure as the artist quality. But either will do for light color washes and fills in your knotwork. Watercolor is available in two different styles as well. One way is a lot like the kiddie paints that you probably had as a child, where the paint comes dried in a little puck, and you moisten it with a wet brush to take the color off. These are called pans, and they come either as half pans for the little size, or whole pans for the full size. Watercolors also come in little tubes, where you squeeze a small amount of paint out and then water that down with your paint brush before painting with it. Either form will work fine for you, but I usually find that if I want to mix to a specific shade it is easier to mix with the tube form. That way you can mix up slightly more color than you think you'll need, and you can let the extra dry up. Because watercolors are not permanent when they are dry, the extra can be wet and used again someday.
Watercolor paper comes in different forms as well. It can come in a pad (like a regular sketch pad), a block (where the sheets are glued all around the pad on the edges), and single full sized sheets. Because most people really soak their watercolor paper when they use it, the paper is usually stretched before using, where you wet the whole sheet down in the shower and then tape it down to a board and allow it to dry there. When the sheet dries, it becomes very taught, and you can then wet it and it will keep the sheet from buckling and wrinkling as you paint. This can be kind of a hassle, so they invented the watercolor block. Because the blocks are glued around the edges, you can paint straight onto the pad and the glue will hold the sheet you are working on flat. It may buckle a small amount as you paint, but if you let it dry on the pad and then remove it, it will have usually pulled flat again.
The regular pads usually come in 140 lb weight. This is the average weight for watercolor paper, with a lighter 90 lb and a heavier 300 lb also being available (although they are not as common in the pads). The sheets can be used straight from the pad, or you may want to take the sheet out and stretch it as described above.
The single sheets come in a standard size of 22" X 30", although some brands also have larger sizes available. The single sheets of 90 lb, and 140 lb, should always be stretched if you are working really wet. The 140 lb should still be okay if you are just doing some color fills, but if are soaking the whole sheet it will still wrinkle. The 300 lb sheets are very stiff heavy paper, and do not usually have to be stretched even if you work very wet. Some brands like Winsor and Newton, Arches, Fabriano, and Lanaquarelle are really nice papers to try, but there are also a lot of less expensive ones if you only want to play around with it. Watercolor papers in the 22" X 30" size, 140 lb weight, usually run at about $2-$4 (Canadian) for student quality sheets, and between $5-$8 for artist quality.
The paper also comes in different textures - smooth (Hot Pressed), medium (Cold Pressed) or rough (Rough). Both the regular name and the names listed in brackets are used to describe them. The most common is the Cold Pressed texture, with the Hot Pressed being used for finer detail, and the Rough to add some visible texture to your painting. Pick according to your project.