I basically use it like Kool-Aid. However, I add some vinegar since the Wilton's isn't acidic like Kool-Aid. Also, it's harder to get it mixed up so it's smooth, so I've discovered it's easiest to mix the paste with just a small amount of water until it's nice and smooth and then mix in the rest of the water. Then I just paint or dye and microwave like usual!
I've found I really like dyeing with Wilton's better than Kool-Aid - the colors are much richer - and a little goes a LOOOOONG way!