This figure study was created with water-soluble graphite. The lines were drawn first, then a waterbrush used to turn some of the graphite into paint. I also lifted some color directly off the pencil with the waterbrush, and drew with the pencil into still-wet areas on the paper. The technique is the same as using water-color pencils, except you're working in grey tones only.
When you can use water-soluble graphite pencil dry onto dry paper, it will produce the same results as a normal pencil. Go over it with a brush and water, then the graphite turns into grey transparent paint, like a watercolor wash. Working with it onto wet paper produces a soft, broad line, that spreads out at the edges.
Water-soluble graphite pencils come in varying degrees of pencil hardness, and as pencils with wood around them or woodless graphite sticks. A woodless version has the advantage that you never need stop to sharpen it. You simply tear off a piece of the wrapper to expose more of the graphite stick. You can sharpen a graphite stick into a point with a sharpener like with a normal pencil, but even easier is to quickly flatten it into a point by moving it back and forth on some paper.