There's a fairly good explanation of how to blend in "How to Paint Citadel Miniatures," although it's a bit wordy and the pictures don't really show it very well.
Basically, blending is "letting out" the paint to get a gradient effect. The name is a bit misleading because you're not actually blending two paints together-- you're creating the effect of two colors merging at a point, though.
It's basically like flat painting, but you're spreading the paint progressively thinner in the direction of the gradient. It requires a wet brush and a little patience.
This is the most simple way I can think of to describe it.
1. Paint a straight, fairly wide line using whatever paint you're going to blend. It need only be watered down as much as you normally would for a layer.
2. Start spreading the paint to the direction you're blending. You won't add more paint beyond what's on the model from the first line. The paint will naturally become thinner as you spread it further away from the initial line, so it will become increasingly translucent.
3. Eventually, it'll thin to the consistency of a glaze, and you'll be able to see the starting base color underneath it. You should have a solid gradient progressing from the starting line to the endpoint.
This is Tydaeus Krassos, one of the bodyguards I made for a scratch-built Abaddon using loyalist plastic terminators and some green stuff. I made one for each of the gods-- this one is Khorne's champion. Anyway, I blended the equivalent of GW's Shadow Grey as the final highlight, so there's a subtle change from the grey to black rather than the usual, more overt extreme edge highlight found on most black armour. It's not a great picture, but it's the best example of my own stuff I've got at the moment since my camera is currently packed up for my move in the next couple days...
