Next to doing historical research, I enjoy creating characters best in the fiction writing process. Every writer does it differently, of course. While my way suits me, it may not suit another writer on this planet.
I create a computer file called "Story Information." In it I list my characters, description of locale (the town or area in which my story takes place) and houses (I've even gone so far as to draw floorplans). One could say I like details.
Once I've chosen names for my main characters--a chore in itself--I begin their biographies in my file. Where and when were they born? Names and main attributes/history of parents. Did they have any siblings? What was their relationship like with said siblings? Where did they go to school and what did they study? Did they play sports? Sing in the choir or play in the band? What were their hobbies? What plucked their nerves? What were their philosophies on family, religion and politics? What talents did they have? What about their annoying habits? Were they humorous or straight-laced? How quickly did they lose their tempers? Were they quick to forgive or did they sulk? Did they seek revenge? What kind of clothes did they wear? What car or horse did they have? Any allergies?
All these things add depth and credibility to the characters. I might only use fifty-percent of this information within the book, but my mind retains all of it as I write about the character. In doing so, I am using Hemingway's Iceberg Principal. To quote Ernest: "If a writer of prose knows enough about what he is writing about, he may omit things that he knows; and the reader, if the writer is writing truly well enough, will have a feeling of those things as strongly as though the writer had stated them. The dignity of movement of the iceberg is due to only one-eighth of it being above water. The writer who omits things because he does not know them only makes hollow places in his writing."
Next comes their physical attributes: weight, height, level of physical fitness, color of hair and eyes, moles, scars, tattoos and other physical characteristics. I've been known to scour through magazines and catalogs until I find a picture that closely resembles a character. By cutting out the picture and taping it to my monitor, I have someone I can growl and hurl insults at when the writing process is going poorly.
I know when writing romance that the male protagonist has to be one the reader can fall in love with, if only between the covers--of the book, that is. The female must be someone most women will relate to. Someone they'd like to have as a friend.
I do the same thing with my supporting characters, but to a lesser degree. It's fun to add quirky charcters to the mix. After all, who doesn't know at least one quirky person? (To all my friends, I can tell you're thinking of me at this point.) By the same token, we have to include the stinkers, the bitches and the schemers in the mix. These people add periphial tension to the story.
The more we know about our characters, the more we can keep them from sounding alike. We want them to jump off the page and give us a juicy kiss or grab us by the throat or pluck at our heartstrings. We want them sweet, passionate, contemptable, or scary. Mostly, we want them to be real.