Dec 24th, 2013
There are contributed modules that will help with this that are listed below. You can also use Form API's #attributes to add in an HTML5 placeholder.
Here's an example using Drupal Form API:
Contributed Modules:
Label Trash: https://drupal.org/project/label_trash
Stylish and accessible option using jquery floatlabel.js
Placeholder module: https://drupal.org/project/placeholder
Module allows non-HTML5 compatible browsers to still display placeholders using a jQuery plugin
Field Placeholder: https://drupal.org/project/field_placeholder
Allows you to add and edit placeholder attribute text for certain field types in the field UI.
Jquery Placeholder: https://drupal.org/project/jquery_placeholder
Does the same thing as the Placeholder module but it has much fewer installs.