You get it at the craft/hobby store. Michael's' has it for sure and I believe Steve mentioned Hobby Lobby. It comes in about every color, even metallics. I'm sure you could mix colors together for a new color or even for a sort of swirl effect. There are different kinds (I don't know how they compare in use) ranging in price from about $1.50 to $3.00 for a two ounce package. One package would make a LOT of keychain fobs.
The package has the instructions. Basically, you pull off a piece, knead it in your fingers to soften it and then mash it into the holes you've cut, being carefull to get it everywhere and overfilling to be safe. After that you stick it in a preheated oven at whatever temperature the package says and for as long as it says. I think mine was 250 degrees for 30 minutes. I put a small piece of foil on a cookie sheet and set it on there. Once it cools, you sand it down flush. After baking, I did take the piece of foil with my thingie off the cookie sheet to fully remove it from the heat of the pan.
Disclaimers: I've only done it once. I didn't glue the pieces together before baking it but someone else on the forum said it worked fine with Gorilla wood glue. When I sanded mine, I just used the belt that was already on the sander which was 80 grit. I think that was too coarse because my clay area has some divots which I suspect - but do not know for certain - resulted from my sanding. Next time I won't be so lazy and will use a finer grit.
