It annoys me to no end that so many children's art materials are of poor quality. Don't get me started on thin paper and those skimpy plastic brushes that come with paint sets. Because I paint in watercolor I'm particularly picky about watercolor materials. Really, unless they have a good brush and nice absorbent paper kids don't stand a chance with watercolors. Of course buying real artists' materials can get expensive and young children probably wouldn't do well with mixing color from tubes. But after some trial and error (and a few times succumbing to giving Sabrina my $3/sheet paper) we found readily available and relatively inexpensive materials.
We like Melissa and Doug's deluxe watercolor set, which includes a nice assortment of colors that dilute well and stand up to repeated soaks. Something I've noticed people often don't know is that you should pre-moisten the paint cakes before giving them to your child. A drop of water in each color is enough.
Alex toys makes the best kids' watercolor paper--it's actually better quality than any of the middle-range papers at art supply stores.
When it comes to brushes, just buy the real thing. They aren't cheap, but if you wash (get synthetic hair for easier cleaning) and dry them well after use they should last into your kids' teens.
And now that your little artists are all set for watercolor bliss, here are some fun ideas to try.