Layering & Feathering

Layering is just that, laying one thin layer of paint on top of the last. However, if you just keep laying paint on the same area, all you will end up with is a flat bit of colour. So, each time you layer on the next level, you make the area smaller. This is hard to explain so ill show you a picture:

Obviously I've made the layers opaque enough in the picture that you can see the transition between each layer. Now, if you were painting a cloak on a miniature you don't want those obvious lines there, do you? This is why painters tell you to thin your paints.

If you are painting a tabletop miniature or aren't fussed about the miniature looking perfect, then you don't need to thin your paints overmuch, just be sure the paint is transparent.

If you are going for high display class miniatures, then you want to thin your paints with water to the point that you can see the colour in it, but applying it in layers won't leave any transition lines. As you can imagine, it needs to be pretty thin, and it will take a lot of layering to make a full transition from one colour to the next.

You might be sitting there thinking 'What's the point of layering like that anyway, the cloak will just be red!'. Well the point is, that you use this layering method over another colour. So you may base your cloak in orange, but the edge of the cloak you want to be red so you'll want a smooth transition from orange to red. By layering on the red as I explained above, you will achieve this.

One important thing people often don't realise is that you cannot overload your brush, especially if you are covering a small area. If you overload your brush, you will just end up washing the miniature with a translucent colour, the colour will just run into the crevices and you will need to soak it back up.
What you do want to do is to get just enough paint on the brush that it makes a wet mark on the miniature, but doesn't run anywhere it shouldn't. You want complete control over where the paint goes. If you do it properly, you shouldn't even have to wait for layers to dry, they should dry by themselves by the time you are ready to put the next layer on or if you blow on them lightly.

Another method is Feathering.
It's basically the same as layering except you alter the colour of the paint as you go. With this method you'll get higher contrast and a quicker shift between colours.