1 - CHALK by Bill Thompson. A wonderful wordless book! Three kids discover a seemingly magic bag of chalk while visiting the park on a rainy day, and are astonished when their drawings of the sun, butterflies and a dinosaur amazingly come to life. The paintings in this book are gorgeous - it will inspire some great chalk drawings!
2 - There are lots of sidewalk chalk sets on Amazon - here is a good one that will last a while (it's one set of all 48 colors and a backup set for when they inevitably break).