They can be anything, really, but it helps if it's a smooth yarn so you can thread it and pull it out as necessary. You can even use dental floss if you're working with pretty fine yarns, or some people use pearl cotton embroidery thread. When you come to the end of a row, take a length of whatever floss or yarn you're using as your lifeline--make sure it's plenty long, it needs to have enough room to fit your whole project row on there even stretched out--and thread it on a darning needle and just run it through every loop of the row. Just straight through, no weaving in and out or anything.

I mentioned the stitch markers before--make sure you don't do like I did the first time I ran a lifeline! I ran it through my stitch markers and of course that meant they were embedded in that row. Whoops. So out came the lifeline. Annoying! If you have those little stitch markers that open and shut, though, it wouldn't be a huge problem.

Anyway, if you wind up having a problem and ripping back, the lifeline keeps you from losing progress unnecessarily or having to worry about accidentally dropping stitches when you rip back. I really don't use them as often as I should.

EDIT: Here's a lifeline tutorial from Heartstrings Fiber Arts.