Generally I think when it says to carry the yarn it means up the side of the project. You can do this if the color change is pretty frequent. You just drop the yarn and start with the other color. I was doing this recently and I brought the working color under the other one and then knit with it..it sort of secures it up the side.
If you are knitting in the round you could just drop the yarn you aren't using and then pick it up again and drop the other one. When knitting in the round though there are no edges so there will be little floats of yarn. You probably don't want to do more than a couple rows between color changes.
There may be a better way, but I don't have the experience to know yet.
