This is a short example how I recently create characters: The first step is always the same: doodles, doodles, doodles! Later I scan those rough sketches and continue the work in Adobe Flash. Using the pen tool in Flash, I am going to play around with my designs. Testing ideas, shapes and proportions. After I did a clean version of the character I prefer to choose, I will export the image as a png-file and do some color tests in Photoshop.
The last step for me is to decide which colors suits the best for the concept, and finally the character is done (till I change my mind on something).