The 64 has separate outputs on the video port for luma and chroma which you can adapt to an S-Video output. There are a few caveats, however.
The chroma signal is a bit "hot" compared to the S-Video standard. The S-Video spec for the chroma line for NTSC is 626.70mVP-P (75% Color Bars), 835.60mVP-P (100% Color Bars) and for PAL 663.80mVP-P (75% Color Bars), 885.10mVP-P (100% Color Bars). I've never seen anyone actually measure and post the output level on the 64's chroma line, but it outputs at a higher voltage than what the S-Video standard dictates. Presumably, this is because the 64's Y/C output predates the S-Video standard by several years.
This higher level output mostly results in over-saturated bleeding colours on a CRT TV but can result in all sorts of crazy colour-cycling nonsense on some LCD TVs, depending on how they process the S-video input internally. The "special cable" involves putting a 300-ish Ohm resistor on the chroma output to get the output voltage down closer to S-Video specifications. This gets you a cleaner S-Video output.
Really old model 64's have a five pin video port, not an 8 pin one, which doesn't actually have a separate chroma line in it. Instead it has just a luma and a composite output. You can technically use the composite in place of the chroma, but that's not really recommended since it won't give you a nice picture at all. The luma line can be used on its own for a good monochrome / B&W output, however.
One further thing you have to worry about though, as far as using an S-Video to VGA converter box. The C64 outputs a 240p signal, not a 480i (interlaced) signal. Not all converter boxes will support a 240p input correctly, it is hit or miss. Check the reviews carefully and see if people are complaining about it not getting a picture with their older video game consoles (NES, etc).