Intarsia is a color work technique that is used to create individual fields of color in one piece. Yarn is not stranded horizontally (like in Fair Isle knitting); rather, each section of color has its own working yarn that moves vertically. You can usually identify intarsia because the color work does not continue over the course of the entire row. Thus, it would be pointless to strand a yarn over a row in which it is not used. Here's an example that I knit up.
While I only used two colors of yarn, I used three different strands of yarn: one purple piece for the center, one mustard piece for the left, and one mustard piece for the right. Here I have recolored my swatch to show where the matching mustard piece is.
As you can see in this close up, it is important to twist your working yarns when you change colors. This helps to prevent holes from forming when you change colors.
And what can you make with intarsia? Click here to see seven knit and crochet intarsia patterns.