There are several papers that are good for this. You will find them at your LQS. I use regular paper and make my stitches small to make it easy to peel off. Also, I have heard of people using the paper sold at the dollar store. It is lower quality and peels easy. I use pins to hold it in place.
I find that blue washable marking pens wash out perfectly well, but the trick is not to use heat after is marked, and make sure you mark after the fabric is cold.
Maria