First, the yarn needs to soak in cold water until it blooms. I let it soak for at least 30 minutes and up to an hour. The yarn gets fatter and opens up which helps it take up the dye. You need to get some (but not all) of the water back out before you put the yarn in the dye or the dye on the yarn, but it needs to be wet before you start.
Mix the Kool Aid into the water in a pot on the stove top. I use warm water so the koolaid will disolve better.
Add the yarn to the water and then turn on the heat. Bring the water to a simmer, not a boil. Keep it on the heat until the dye is completely absorbed by the yarn.
Make sure the yarn is completely submerged in the dye bath.
Keep the heat on until all the dye is absorbed into the yarn. The water will turn clear on blues and greens (tho we couldn't find any kool aid in those colors yesterday) and slightly white on reds and purples and oranges.
Rinse the yarn (tho there won't be any color left to rinse out).
For our orange yarn, we wanted it to have some darker blotches so the goldfish wouldn't be so boring. So, we took the wet, newly dyed yarn and put it in a pyrex baking dish. Then we opened another pack of orange Kool Aid and sprinkled the contents on the yarn. Then we microwaved it (instructions in the painting post) and it came out with lovely dark orange blotches on the orange yarn. Right now I don't have pics of the finished product because it doesn't photograph well. I'll try for those later.
More patterns at: http://ourknitalong.blogspot.com/