I think Dyreka said it very well, so I will just add a little.
I've been using the 1,2,3 warning system since my oldest (now 4) was a pre-verbal toddler. I didn't read a book, but I've seen one recommended that describes the system in detail (called 123 Magic, I believe.) I just told my daughter that I was going to count to 3 and if she was still xxxxxx, then I would have to XXXXX. After a pause I would count slowly and put up the appropriate # of fingers. Even a pre-verbal toddler gets the concept. = )
I agree with Dyreka that the MOST important thing you MUST do is follow through on any consequence you threaten them with. (No tv, no treat, no special toy, no playdate, no outing, etc.) As she said, if they learn that you will not do what you say, they will just ignore whatever you say (and rightfully so.) You also need to stay calm and be matter-of-fact about it: "I told you that if you did/didn't xxxxx, that I would XXXXXX. Next time please listen to Mommy so that I don't have to do XXXX."
It is important for you to think a little in advance of what you will hold as a consequence, and how those consequences will also escalate or pile up if their bad behavior continues. Take the time to do this once in a while so that you won't be fumbling at the moment when you need to tell them one. Also, if you think them out in advance, then you will be less likely to say something that will be difficult for you or *on* you to follow through with.
Since my daughter was about 3, I've been able to just hold up fingers, 1, 2, and 3 if necessary, to do the count, so I don't even have to say anything out loud (works great when we are in church or a theater!) She knows that if I get to '3' that whatever I said will happen, WILL HAPPEN. I do believe that as a result I have a far nicer kid whose meltdowns are over far quicker and whose behavior as a whole is much better. On the flip side, I try to be consistent the other way as well - if I promise her a treat, even if she forgets, I will follow through on it.
I use the 123 system in conjunction with time-outs - they are often a consequence. I have also found that sometimes the most effective time-out is not of my child, but of her favorite toy of the moment (not necessarily the one she's playing with at the time of the incident.) She *really* dislikes losing the 'control' over HER toy. = )
Good luck!