Fade Effect on Link Hover?

Nowadays people are just using CSS3 transitions because it's a lot easier than messing with JS, browser support is reasonably good and it's merely cosmetic so it doesn't matter if it doesn't work.

Something like this gets the job done:

a {
  color:blue;
  /* First we need to help some browsers along for this to work.
     Just because a vendor prefix is there, doesn't mean it will
     work in a browser made by that vendor either, it's just for
     future-proofing purposes I guess. */
  -o-transition:.5s;
  -ms-transition:.5s;
  -moz-transition:.5s;
  -webkit-transition:.5s;
  /* ...and now for the proper property */
  transition:.5s;
}
a:hover { color:red; }

You can also transition specific CSS properties with different timings and easing functions by separating each declaration with a comma, like so:

a {
  color:blue; background:white;
  -o-transition:color .2s ease-out, background 1s ease-in;
  -ms-transition:color .2s ease-out, background 1s ease-in;
  -moz-transition:color .2s ease-out, background 1s ease-in;
  -webkit-transition:color .2s ease-out, background 1s ease-in;
  /* ...and now override with proper CSS property */
  transition:color .2s ease-out, background 1s ease-in;
}
a:hover { color:red; background:yellow; }

Demo here

You can do this with JQueryUI:

$('a').mouseenter(function(){
  $(this).animate({
    color: '#ff0000'
  }, 1000);
}).mouseout(function(){
  $(this).animate({
    color: '#000000'
  }, 1000);
});

http://jsfiddle.net/dWCbk/

I know in the question you state "I assume JavaScript is used to create this effect" but CSS can be used too, an example is below.

CSS

.fancy-link {
   color: #333333;
   text-decoration: none;
   transition: color 0.3s linear;
   -webkit-transition: color 0.3s linear;
   -moz-transition: color 0.3s linear;
}

.fancy-link:hover {
   color: #F44336;
}

HTML

<a class="fancy-link" href="#">My Link</a>

And here is a JSFIDDLE for the above code!

---

Marcel in one of the answers points out you can "transition multiple CSS properties" you can also use "all" to effect the element with all your :hover styles like below.

CSS

.fancy-link {
   color: #333333;
   text-decoration: none;
   transition: all 0.3s linear;
   -webkit-transition: all 0.3s linear;
   -moz-transition: all 0.3s linear;
}

.fancy-link:hover {
   color: #F44336;
   padding-left: 10px;
}

HTML

<a class="fancy-link" href="#">My Link</a>

And here is a JSFIDDLE for the "all" example!