When creating characters for Kind Kids Curriculum, I found it helpful to have a prototype puppet to work with when developing the personality of "Buzzy Bee" and friends.
Since the skits would be acted and filmed, it was necessary to find the natural conversation as the characters moved through different environments.
I did the same thing with a "literary" short story, only I substituted several settings for the actual setting of my character just so that I could view how people interacted in busy public places. This gave me a feel for what my character needed to act like and look like. I did my homework.
Another thing I do is "people watch". You can learn so much from doing this.
To see what I mean, take yourself to these three settings: a park, the mall, an airport. Choose three people to watch and write down EVERYTHING they do. Watch facial expressions and body language. Try to notice emotions, if possible or make up what you think is the emotion behind the action. Take a mental picture and write it in your journal. These character sketches will help you later on when you look for motivation for your characters. When you write, you will be describing the emotion and behavior through the characters' actions rather than by stating "She was angry" or " He was very rude."
Some times, the things that real characters do will not seem believable when read in fiction. You may have to adjust your descriptions a little to use them in your stories. It sounds strange but most of my writing friends tell me that this is how they develop ideas as well. We write what we know. Sometimes a mental image of an elderly woman we knew becomes the grandmother in a story. Sometimes Nellie Olsen becomes a type of character for your article on parenting or teaching. Use them as tools but create your own characters.
My three tools: Observe. Elaborate. Tweak.