Lite sanding, water & mold proof prime, latex paint.
Darlene: a good latex paint + primer will do the job in a couple of coats
Take a good photo (or better yet a piece of the paneling) to the paint dept. at your home improvement store and ask for their professional advice on materials and application methods.
Sherwin Williams Emerald paint. Paint and primer in one with advanced stain blocking technology so it covers in ONE coat. It's low VOC. I use this paint exclusively for everything since a quart covers 350 sq. feet and I believe a gallon covers 1050 sq. feet. About every 3 weeks they have a 30% off sale so you get an even bigger bang for your buck.