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Many people think, when starting out with a new medium, that buying something cheap is a good idea. That way, they figure, if they don't like it they won't have wasted much money on it.
However with art supplies it is certainly true "You get what you pay for".
You can buy a set of pencils from your local supermarket for a couple of dollars - but the "lead" the colored core, the bit that leaves a mark will be gritty, dull, impossible to get smooth. You will be left with the feeling that colored pencil is not the medium for you.
Good brand color pencils have vibrant colors, they glide on smoothy and blend together beautifully. With a little practice you won't see lines when you shade. Yes, they do cost more money, but you will be left with the feeling of "This is possible!"
Prismacolor Pencils
Prismacolor is certainly one of the most popular brands in color pencil. They are amazingly smooth and very blendable - they even make a special "colorless blender" pencil for that purpose. Unfortunately until lately they haven't given much thought about light fastness - that is, the number of years that artwork will last before fading in normal light conditions. However they have now bought out a series of pencils that were designed with the highest light fast rating.
They come in 48 colors which you can buy in sets, or seperately, although not all places carry them seperately (open stock). There are more colors in the Prismacolor range - but they are not yet light fast.
Faber-Castell 
Faber-Castell is one of the oldest art companies around, and was the first to make graphite pencils with a wooden casing (like our modern pencils). Also known as Polychromatic. There are 120 colors with a high light fast rating and you can buy them in different size sets or as open stock (where available). Although not as blendable as the Prismacolors they do blend and they keep a sharp point for longer and are wonderful for tiny detail.
Editors note: - I personally use both Prismacolor and Faber-Castell, with a preference towards the Faber-Castell. See my gallery for examples.
Caran d'Ache Pablo
An oil based colored pencil. Being oil based it is, of course, water resistent. The company makes 120 colors with good light fast properties. Oil based pencils are excellent on many surfaces - including wood. Therefore these are an excellent choice for pryography.
Derwent Colored Pencils
Derwent colored pencils have been tested for light fastness, and come in 72 colors. All the sites I've seen do give them good write ups, however it must be taken into account that these sites sell the Derwent brand. Some artists that I have spoken to have said that they find the pencils to be occasionally gritty, although other artists use them as their first choice. Derwent have bought out a new range, their Signature Colored Pencils with 60 colors, and the write up on these sounds very good. 
Koh-I-Noor Woodless
These pencils have the advantage of not having a wooden casing. These means that there is 5 times more of the color component then in a normal colored pencil. I haven't seen or read any reports about the actual product, and they have a limited range of only 24 colors.
Watercolor Pencils
Many brands of pencil also make watercolor pencils. These pencils are fun to use and can make an interesting addition to your sets. Once again you can usually tell by the price how good the pencils are going to be. If you have a favorite brand I'd suggest you see if they make pencils in a watersoluble forumar first as you are likely to like them as well.
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