When I first began knitting hats I was really excited to make a striped Chargers hat for Jim. I made a navy blue beanie with a gold stripe. After I had finished I was really proud of myself. I remember we were at a friend's house watching the game and Jim was wearing his new hat. I looked closely at it and realized his stripe did not match up correctly.
The problem, briefly, is that in circular knitting, you're really knitting in a continuous spiral, and the last stitch of any circuit around the tube comes out to be one row higher up than the first stitch.
It doesn't show in one-color knitted fabric, but in color patterning (the plain horizontal stripe being the simplest case) this shows up in the form of The Jog, at the point where the round begins.
The classic method for disguising the color jog was developed by Meg Swansen, and described in great detail in an article in Knitters 45 (Winter 1996, pages 33-35), called "The Jogless Jog."
It is actually very simple to alleviate:
http://www.socknitters.com/kickback/joglessjog.htm