Summarize:

Acrylic and other synthetic yarns do not take dye very well, if at all. Your yarn need to be 100% wool, such as alpaca or sheep. Other natural fibers, such as cotton, may also work. White yarn will give you the brightest colors. If you want a softer effect, try gray, cream, or beige instead. There are lots of things you can use to dye your yarn with, including liquid food coloring, gel food coloring, and flavored juice mix (ie: Kool Aid). You can also use professional dyes as well, but you'll need to use special utensils for that to avoid contaminating your cookware. You can use just one color, but two or three will make your yarn look more interesting.
Buy some natural fiber yarn. Choose 1 to 3 colors of dye.