The wrong colors can make your project look like it should be buried under a full moon without a grave marker.
So how do you know what colors will work best for the project you have in mind?
The first thing to keep in mind is always use colors you like. Color theory can tell you which colors go with which other colors. There are color wheels you can buy, entire books on color combinations that look good together, you can ask your friends for advice, but at the end of the day if you use colors you are unhappy with in the skeins the end result will be a project you are unhappy with.
I don't know about you, but my life is too short to knit with yarn I don't love!
The second thing to think about is your vision for the project. If it's a project that requires on skein of yarn, like socks or a simple hat, this is fairly straightforward. Pick a skein in a color (or colors) that you love. That's it.
If this project requires multiple skeins of yarn the process is a little bit more involved, but it's also a lot more fun because you get to play with all of those skeins of pretty yarn you've been buying for a rainy day!
What kind of effect are you going for with this project? Are you looking for a soothing vibe? Something bold and bright? Calm with a pop of color? Warm colors? Cool shades? Seasonal vibes? Is the project lace or partly lace? Are there textured stitches or is the project mostly stockinette or garter? Is it a single piece of fabric or modular? The answers to these questions largely drives your choices.
For example, lace and textured stitches work best on solid or tonal colors. High contrast hand-dyed yarns are lovely, but the quick color changes will grab the eye and detract from the detailed lace and/or textures. Modular patterns will work best with color cordinated colors, but depending on the project hand-dyed yarns can be lovely used here.
I'm told that a good way to see if your chosen colors blend together well is to take a black and white photo of the skeins together and see how they look. If they are pleasing to the eye in black and white as well as in color then they are good choices. It's easier to tell differences in color types when the color is removed from the eyes.
Creating pleasing color schemes is something that takes practice. You may not get it right at first, but trust yourself and keep trying. You can always frog projects that turn out bad, or gift them. Chances are that the color scheme you hate will be loved by someone else!
If you're really struggling there are books that you can buy to help guide your way. A favorite book of mine is A Dictionary of Color Combinations . First published in in a six volume set in Japan in the 1930s and republished in the 21st century, this book contains almost 350 different color combinations. From two color combinations up to five color combinations this book is both a fun look at historical color theory and a great pocket sized reference book for planning your next project. It's the perfect size to fit in your knitting bag for going to your LYS or fiber festival to plan projects on the go.
At the end of the day there are no wrong color combinations. Each project is unique to the knitter who created it and your eye is a good one. Trust yourself and your good taste and you will find that in almost every case that you were right all along. These guidelines I've talked about are just that, guidelines. You are free to ignore them or treat them like gospel.
Happy knitting and be fearless in your color choices. Remember, it's just yarn. If you don't like it when you're done, reclaim the yarn and use it for something else. You literally cannot go wrong.