A solution of about 4% NaOH is generally recommended. Submerge the pretzels for a few seconds just before baking. It does something to the outside layer of dough that results in the brown crust of the pretzel. In addition to the pleasant color, it also affects the flavor. Also, it makes it easier for the coarse salt to stick to the outside of the pretzels.
NaOH immediately causes stains on clothes and wooden cutting boards and countertops. Obviously it's also bad for your skin and especially the eyes, so be careful.
Bagels are usually dipped in lye as well, it's how they get their bagel-y texture on the outside crust.
Sodium carbonate is sometimes used as an alternative to lye for those who don't want to deal with the safety aspect of handling lye, as lye is very caustic. Of course, lye still provides the best results.
