Whilst most colored pencils are wax based, some brands use an oil based lead, like Faber Castell's Polychromos. These pencils are very soft to apply color so will cover every fibre of the paper with their bright hues, but they are also very expensive and should only be considered if you are looking to take your art to the highest level.
The idea is to fill an area by coloring the fabric behind the embroidery. Usually, this means that only the outline is embroidered, with some details added. However, tinting isn't only for coloring inside the lines. Many artists use this technique to create spectacular backgrounds, borders, and accents for their embroidery work.