[EDIT: yes, it's called mouseDragged() and it checks for left-button held down, as i see it.]
However, this only works, as I see it, inside A component.... what about intercomponent? Say I wanted to make a map editor (obvious applcation) with a terrain toolbar at the right, where I'd drag terrains onto a grid in the main panel... what would you suggest there?
mouseDragged is triggered by any mouse button drag event, not just the left mouse button. Its proped up at either end by mousePressed and mouseReleased, so you'll want to check for a click within your paddle to start with, and set some sort of state var to id. what you're dragging. Then mouseDragged can use the delta positions to readjust the object to its new position, and mouseReleased can reset your dragging state variables to their inactive form.
Dragging from one component to another is a pain, DnD is probably the best option, but then again - do you paint in PSP or Photoshop by dragging pixels from your pallete to your image? Thought not
And yes, if you're doing your own drawing then Canvas is usually a better idea than JPanel.