Step 1: Type of Pencil
Any pencil will do, but avoid the built-in erasers. Lighter pencils are better than heavy, round pencils are slightly better than hexagonal.
For reasons explained later, it's better if the pencil is sharp. However, watch out for eyeballs when throwing sharp pencils!
Step 2: Holding the Pencil
Place the tip of the pencil in between these digits, such that when you do click your fingers you will be rolling the pencil.
Step 3: Launching
The pencil will leave your hand with such spin that it will hum.
Step 4: Style
Use various throwing actions: start with pencil hanging down, and throwing it underarm as you spin it makes a log which is impossible for others to catch. Hold your arm out horizontally to your side, with the back of your hand facing forward and the pencil in line with your arm, moving your arm forward as you spin it. This launches the pencil straight forward with a load of backspin, which gives it lift. It can fly quite slowly in a straight line. When you get it right it's really quite amazing.