I keep a folder of photos that i rip out of magaines. After I come up with a name for each character, I go through the folder to see who looks like a "MaKayla" or a "Bobby." It's just a gut feeling I go with to decide.
Once I know what my characters look like, I start writing. I create the character as I go along. During the first full run of the manuscript, I get my characters in a situation and then I have them react. After they react, then I come up with a reason for his/her reaction. What happened in their past to make them the way they are and why he/she reacted in such a way. Then I'll go back and add give my characters feelings during a reaction. It makes them come alive.
Once I have them perfect, then I have to give them flaws. Something that will go against the story. Example, one of my characters doesn't kiss in public. So I have my hero always showing her affection in public. So you can imagine, this heroine is uncomfortable whenever he does this, so during the story and in the end, I have to get the hero to break this uncomfortableness within the heroine. By the end, she's showing him affection in public.
Your characters need to show some kind of change from the beginning to the end. You may have a shy heroine working in an office who kisses the boss's ass because she's afraid of her, and doesn't like her. But by the end of the book, the boss may be getting the heroines coffee because the heroine broke out of her shell and told the boss where to go. See... character change!