There are a couple of brands, one of which is made in Australia (Derivan Liquid Pencil) but nobody seems to carry that here. My understanding is that it's basically a liquid, perhaps a bit similar to a thick ink or some of the earthier P.H. Martin's Hydrus watercolours. In any event, as interesting as that would be to try, it's not readily available in my locale.
So, what is readily available is the ArtGraf Watercolour Graphite. This is in a cake form, similar to watercolour pans, but much larger. You largely treat it like watercolour and paint as you normally would. So, I did a small experiment with some basic shapes to give it a try. Some observations:
First, it doesn't quite flow like watercolour. While it paints relatively smooth, picking up more graphite and dipping it into the wet areas didn't quite result in the spread that I would normally get. It felt like it was drying a touch quicker, which may account for it.
Secondly, it doesn't lend itself to rewetting and blending quite as easily. Again, I suspect this is a function of the faster-seeming dry time. In other words, for gradient washes, I think you're going to want to work with a larger brush for a given area and go fairly quickly.
Having said all that, it behaves a lot more like traditional graphite once dry and so you can use a lot of the normal techniques for blending and smoothing as you would with pencil. It certainly allows you to spread a lot of graphite very quickly which can help to speed up shading and such in larger drawings. Mind you, the paper you use matters here as, after all, it is a water media. I tested using a watercolour sketchbook, a normal pencil sketchbook probably pills and tears with any real water application.
Now, because it does behave as normal graphite once dry, it can smudge. So, as a result, I would really recommend the use of a fixative once the image you create is completely dry.
In any event, I like it. While hardly an exhaustive use of it just yet, I really like graphite as a medium and I'm looking forward to doing some mixing with watercolour. The finished, dry, surface has a really nice sheen to it and that is one of the things a lot of us like about graphite work.