Also known as: Fair Isle, fairisle, stranded colorwork.
Stranded colourwork is a method of knitting with more than one colour. It is most often used for designs where the colours within a row are used throughout the row, as opposed to designs where the colours appear in blocks.
Stranded colourwork can be recognized by the strands of yarn (“floats”) on the inside of the fabric that correspond to the colours not forming the stitch on the outside. Traditional Fair Isle knitting limits the number of colours in use within a row to two.
How to do it
The technique is also described in these links.