This way is a technique I first learned when I started using Paint Shop Pro. At the time, I had version 5, but this style is so simple that it should work for every version and most likely for a bunch of other programs. The technique is especially useful for simple sketches that you don't want to finish by hand but do want to color properly, or if you start from scratch. A tablet is recommended, as it makes pertty much everything easier.
For this tutorial, I'm going to use Paint Shop Pro 7. PSP is good. And it doesn't cost millions of [insert your preferred currency here] like some other programs. Well, unless your currency uses millions by default.

Let's just start off with a smudged sketch.

Sketchy enough; doesn't even have a background. Remember to scan the thing big so that you'll have more space to do all the juicy details. My example drawing is approximately 3000 by 2000 pixels.

Now, the basic idea is to redo the whole drawing in color and on different layers. So, let's just grab our basic Paint Brush. I'm using the thing with 50% hardness to not make the edges look too hard or soft, and no other special settings. You're free to try whatever settings are the best for you.

If there are many small places to color (like their fingers), I'll switch momentarily to a smaller size or put on the "Vary width" function of the brush. The function is very useful if you lack the patience to change brush sizes all the time, and brings nice variation to the line width if you're sketching with the program. (Though, to get a smooth line, you should use a big canvas (pixel-wise) and a big brush size.

Create a new layer, name it something descriptive (like "skins") and start coloring! Remember to zoom in to the drawing to draw more precisely. Make the lines smooth so that it will look good even without the sketch on the background.

Now their skin colors are added on one layer. As you can see, I ran into problems with the arm of the second creature (from now on referred to as Kale), as it is supposed to be over the clothing. Thus, I didn't color it in but disregarded it and went ahead with the legs. The arm will be colored on a different layer. And the right arm was disregarded because it will be covered by the wings anyway, like were their thighs that will be covered by clothes. No reason to bother coloring places that won't be showing! Of course, you could color them in too and when the picture's finished, you could choose whether or not to have clothes on them, which is always interesting.

Now all the base colors have been added. And yes, everything has just been filled in with the Paint Brush, occasionally using the Eraser to smoothen out things and so on. If there are very large areas to cover, it is useful to use the "Flood Fill" (paint bucket) tool.

The picture might not look like much, but remember that we're only halfway there, and the other half will be the more demanding one. And indeed also this version has more than you would expect; just take a look at the list of layers on the right.

It's important that you slap the layers on the picture in right order, so that certain things are on top of others (like the clothes layers that are on top of the skins layer, but the one that contains Kale's arm is on top of the clothes). Now, if you've got a character twisted into a relatively normal position, this will get rather kinky. After all, even in my picture the arm starts from under the clothes but ends up over it! I haven't figured out to make this issue work properly on a 2-dimensional drawing (and very likely there is no way to do it in 2D-world), so one just needs to improvise.

As you can see in layer list, the "original drawing" layer is hidden, and you can also see that its "Blend mode" is set to "multiply" instead of "normal". This setting makes the black lines of the sketch to go over all the stuff while the white lets all the colours through, which helps in filling in the colors, provided that the lines aren't too thick. If they are too thick, just make the layer more transparent to see through the lines. You can also use transparency if your program doesn't have the "multiply" blend mode. Other blend modes (like "darken", which is better if the sketch is very light) also achieve approximately the same effect.

I'm making more use of the layer blend modes in my tutorial number three; now we basically don't use them at all. Only the transparency setting is used to make Geariyo's shirts seem transparent.

Now begins the hard part of the coloring: shading. The technique described on this tutorial pretty much only makes use of "Retouch" (or the Finger Tool, since it looks like a finger) and the following properties (similar ones are put together):

1. Smudge
2. Darken / Lightness down / Burn
3. Lighten / Lightness up / Dodge

So, choose the Retouch tool and the middle tab to choose the setting of the tool you want to use from the drop-down menu.

Comparing the differences in the darken/lighten/etc. settings can be annoying, so I made a quick reference.
As you can see, the tools work differently on the colors based on their lightness and saturation. The red on the left is a full red with no or a minimum amount of other colors in it (fully saturated). The blue on the right is almost grey, with a bit more blue than other colors; not very saturated.

So, choose one of the settings for the Retouch tool and start shading! Just remember to choose your light source before beginning!

The light blue square background is my transparent background, in case you're wondering. You can set it to be whatever color you want, basically. (File, Preferences, General program perferences, Transparency.)

Now everything's been shaded. You can see I'm not big on backgrounds. Also, you probably noticed that I did what I just told you not to do: I lost the light source. Don't do my mistakes; ALWAYS choose your light source and remember where it is, no matter what! And of course, shade according to that light source (or sources, if you've got many).

Well, there isn't much to do anymore. Just the smudging. Which is usually the part that takes longest, but maybe I just like the smudge tool too much.
Anyway, the smudge tool is used to smoothen the shading and the outlines, but in moderation. When smudging, it's rather important that you have a tablet and that the "Vary opacity" is on in the third tab of the tool menu.
Use a big brush size (26 and bigger), 0% hardness and 10–20 steps when smudging large areas (such as the characters' clothes and certain skin areas on my example picture), and small brush size (6, 11 or so) and 0–5 steps when smudging detailed areas (like the facial features).

For hair I have my own little smudging technique, and people have seemed to like it. I take a small brush size (11, 6 or even 3 if the picture's small) and smudge the whole hair so that it becomes spiky looking. And when you zoom out, it'll look hairy, and since they have their hair standing up, they'll still look spiky. I've used this technique on almost all of my computer colored pictures, and this cyborg's hair may be my best example of hair that's not standing up at its ends but has still been created with the same technique.

Since the picture itself is very big and the faces still very small (and my computer's not very stable), I did their faces separately in a bigger canvas, then resized it and pasted them into the big picture. It's a rather useful tactic if your computer's a little performance-limited.

And that was it. I tweaked the background a little and added a few clouds, but here it is, finished. I hope you got something out of this tutorial!