There's also a kind of colored pencils that's called water_coloured pencils. The way of application is just the same as colored pencils. However, with this media you can achieve a watercolor effect by dipping a brush in water and brushing along the colored areas with it. It's actually a fun media to try especially if you want to use a watercolor but find the mixing with water hard. It's easy to use as well.
Professional level pencils like Derwent or Prismacolor offer the best quality and typically are the most expensive pencils to buy. The wax in these pencils is softer and the colors are a higher pigment providing brighter colors. The soft application allows blending and shading.