I work out an idea in my head, basic plot (start, middle, end), things like that. Then I start coming up with my characters, ones that fit the action in the story. I create complete character bios for them, I include things that I would never need. All of this information I write down on 3x5 note cards. I also craft out the more subtle aspects of the story, different plot points and subplots all written down on note cards. Some of these get filed, some put on my cork board above my desk. Also, I have a dry erase board for quickly writing down ideas.
Basically I write down every idea, then go through it with a fine tooth comb. Then I construct an chapter by chapter outline. Finally I write. It is a long process, but it works for me.