After editing in some new information in my guide to colored pencils, I went way over the 20,000 character limit. So here's all the watercolor pencil listings I removed, including some new ones I added that helped push it over the size limit!
These are the brands of artist grade watercolor pencils I've owned, studied or tested. As I add to my sets, I'll update this Guide with new listings.
Cretacolor Aqua Monolith: Cretacolor Aqua Monolith come in an amusing tin with a zigzag array of color-arranged short sturdy woodless watercolor pencils, and they are a good bargain despite a somewhat high price for sets of similar size because they're woodless, with five times the amount of pigment available than a wood-cased pencil. On top of that, with a woodless watercolor pencil, shavings can be saved per color which makes mine also serve as a 72 color watercolor set. Sets of 12, 24, 36 and 72 are available and lightfast ratings are listed per color. Softness is comparable to Polychromos, or to most other watercolor pencils, middling for artist grade pencils. These pencils are about an inch short and very heavy in the hand, but sturdy and less likely to break than wood cased colored pencils. Recently a holiday set with a silver and gold Aqua Monolith, a pencil cap, sharpener and pencil extender has become available too.
Cretacolor packages the Aqua Monoliths in tight fitting tins with a styrene tray and a thin foam pad that lays over the pencils to protect them. This pad is very useful inside any tin, so if you move them to a leather case as I did, save the foam to protect some Prismacolors.
If I were to invest in only one large set of artist grade colored pencils, these would be the most versatile, but I'd miss my Prismacolors. Colors are unique artist colors like the other big sets. Cretacolor Aquarellith are wood cased watercolor pencils probably in the same color range. Cretacolor Aqua Briques are a new product with a thick rectangular slab of the same core material in a range of 10 or 20 colors with a brique holder to avoid sweat melting the material, they're drawing chunks that can also be used as watercolor pans directly.
Derwent makes woodless watercolor pencils as well, in a range of 24. Derwent Aquatones are surprisingly long, maybe a little longer than regular colored pencils though I don't have one handy to measure. Colors are very brilliant, qualities and techniques work like Aqua Monolith including using the side of the sharpened point to get a broad loose stroke and saving the shavings as watercolor (just add water).
Derwent Watercolour Pencils are available in a range of 72 and come in good snap-lid tins like other Derwent products, or in a couple of wood box gift sets. Colors match the Derwent Studio 72 color range and the Derwent Coloursoft 72 color range. They are softer than Derwent Studio and have a slightly dry feel, but dissolve rapidly with a wet brush. Some wonderful instructional videos come on a DVD with the larger sets sometimes, also the Derwent homepage has demonstrations on all their pencil products including their specialty pencils.
Prismacolor Watercolor Pencils are exactly like nonwatersoluble Prismacolors for feel and colors match, but they will dissolve with water and have good laydown and softness. I haven't yet tried Albrecht Durer, or Caran d'Ache Suprasoft or the other artist grade watercolor pencils, but I haven't heard anything about them to suggest they have lower quality than the nonwatersoluble pencils from the same manufacturers.
Update: Fantasia Watercolour Pencils come in the same 36 colors that Fantasia Premium Artist Colour Pencils are in. I have a set of 24 from a clearance gift set Blick used to carry, and they are soft, pigment rich, very strong and easy to handle. Considerably softer than the Fantasia Premium Artist Colour Pencils, they're good watercolor pencils.
For convenience, a water-handle brush makes a set of watercolor pencils a good medium for outdoor watercolor sketching, or you can add water to the sketch at home for wet effects. With wood-cased brands picking the wood shavings out of the shavings makes the frugality of using them as watercolor a bit time consuming, but with any of them you can scrape the point with an art knife or razor blade to get a little powder, wet it and do direct washes as with pan watercolor. They can also be shaved directly over a wet area on the page and give an interesting speckle texture.
Mongol is a very old student grade brand of watercolor pencils that are faint, thin and hard when used dry, but dissolve well to a brilliant color. Update: I just bought a vintage set of 12 Mongol "Paint with Pencil" colored pencils, and when that arrives I'll test them and let you know the results. I may have them confused with other colored pencils I had as a child from now-defunct brands, and I do know that at the time I didn't know how to handle watercolor pencils well, so I got frustrated with children's drawing paper cockling from the water. I could be wrong about their being that faint and thin.
Staedtler Karat Aquarell come in a range of 60 brilliant colors. I've got a 48 color set and find them very handy. The two-tier tin is small and compact, with no sloshing around to give them internal breakage. Coverage is excellent, texture is soft and comparable to other good watercolor pencils, a bit softer and richer than Cretacolor Aqua Monolith but not as soft as Derwent Aquatone or Prismacolor Watercolor Pencils. They blend well and are so good used dry that I sometimes forget to wash them and just treat them as excellent colored pencils.
General's Kimberly watercolor pencils come in an artist grade and a student grade and I've only seen the artist grade set in a package including brush and some other conveniences. General's Kimberley products are quite good though for graphite and charcoal products at a very low price, they are in my personal opinion artist grade and it wouldn't surprise me if their watercolor pencils have good laydown and dissolve well. If anyone's tried them, please note me with your results!
The one thing to remember with all watercolor pencils is that they're water media. They will work best on heavy paper or on heavy watercolor paper, or too heavy a wash will cockle the surface. You can get watercolor effects much easier with watercolor pencils if you're better at drawing than painting, because you can lay down tonal layers and have more control in the wash than with watercolor pans or tubes.
Unless you like stretching your own paper by soaking it and taping or stapling it to a wooden drawing board to dry overnight, watercolor blocks are the easiest alternative for watercolor pencil painting. Bound on all four sides, even if they bubble up when wet, they dry flat. There's usually a corner or an inch wide space left unbound to peel up the top page on a watercolor block. They are a little more expensive than same size watercolor pads, but worth it for the lack of headache unless you use very little water.
For ACEO art, it's so small that I cut it from pads or loose sheets. They usually dry flat and can be taped to a normal clipboard if a wash covers so much of the card that it'd cockle and bend. You can flatten cockled, bubbled art by carefully dampening the back of your finished art, putting it on a clean blotter with another on top of it and stacking a lot of books on it till it dries.
A good soft pointed watercolor round in a medium or small size is the best way to wash over watercolor pencil paintings. You may prefer a flat brush for wide areas, but golden taklon is softer than white taklon and sable is better than bristle.
You can also shave the points into a palette, add a few drops of water and have a liquid wash handy for traditional painting. This makes watercolor pencils an inexpensive but excellent way to also have some artist grade watercolors in a wider range in your possession, especially the woodless watercolor pencils like Aquatone and Aqua Monolith.