Its very easy to do.
I picked up some Sanford Paper Wrap China pencils are Hobby Lobby. They had them at OfficeMax as well, but only bulk packs. I didnt need a dozen! They only had red white and black, if you want other colors you can find them online. I picked up 1 of each color here
ClickI cant speak for the online store, first time I've shopped there.
Anyways, once you have the pencils clean the area thoroughly to get off any grease. I used mineral spirits, some use 99% alcohol. Doesnt matter, just get the oil off and try to to ruin the finish doing it.
After that its color time. I ended up doing 3 passes. First pass I pressed down fairly hard to fill in the engraving, then used mineral spirits again to wipe off the excess. Use your mineral spirits or alcohol, whatever you have handy. Mineral oil easily cleaned off the color so I used a Q-tip to apply a small amount on the edge and then wiped over it with a paper towel. Once I had most of it cleaned up I did a second pass with the pencil to fill in the engraving some more and used a bit lighter pressure. Clean, then a third pass with very light pressure. Clean once more, then wipe the area with a cloth and some gun oil to get oil back on the finish.
Thats about all there is to it. Theres a good post in the AR section here
ClickOne thing I noticed is you want fairly deep engraving or its a massive pain in the ass to remove the excess without removing it out of the lettering. Thats the problem I had with the knife, it was pretty tricky to do and still doesnt look quite right.