The yarn you are carrying must be taut. As you stitch, pull the unused color tautly behind the current stitches and catch them with the thread you are using.
When you start of the round, pick up a loop of your first color from the previous row and place it on the left needle. Next, knit together the first stitch of the new color and the picked up stitch. Now,you can continue to knit. This will help eliminate color jag.
When knitting in the round, pick up new color (color 2). Knit along for 1 row. When you complete row 1 and get to the place where color 2 was introduced, slip the first stitch that you did with color 2 from left to right. Continue to knit as normal.