You really only need a few basic colors. Black or dark charcoal for the soot, various shades of brown for the dirt and lighter tans/greys for dust/ballast dust, and rust for, well, rust.
I apply the chalk (pastels) dry for the basic result you see earlier in the thread but have used them wet on limited occasions. The "wet water" (drop of dishwashing detergent in pint or so of water) is only used to remove excess "soot" for a streaked effect around ribs, etc with the paper towel.
This is a simple technique. Don't be afraid to try variations on an inexpensive piece of rolling stock for practice. You'll be amazed how easy it is to produce a nice looking model quickly. Soon, you'll get the results you're after and it'll be second nature to you.