Oh, characters. Drama, traits, idiosyncracies, conflicting emotions, baggage, reflection, deflection. Everything you see in real life, you see in fiction. To tell the truth, there are things that happen in real life that I honestly would never think of off the top of my head for my fiction (i.e. military wives starting affairs with other women while their husbands are deployed overseas, etc.). And no, I haven't used that one yet. I will say I've observed the real people that situation impacted, however. As authors, we never stop being students of human behavior...
My characters come to me usually in an emotional turning point of the story I know nothing about. Characters surface in my reality based on whatever emotion pops into my mind as I'm driving, taking a shower, walking, interacting with friends, in a bar, in the bathroom. Yes, even the bathroom. Not only do I suffer from Writer's Schizophrenia, my characters have taken away so much of my privacy!
Anyhow, getting back to where my characters come from. They stem from emotion first. I get a better feel for what's special about them based on how they react in very honest, personal moments. For instance, one night I was trying to fall asleep and I started thinking of terror (with no character, scene, plot in mind at all. Just plain old terror.). I wasn't feeling terrified myself, but just the thought of terror in combination with a dark room began a character illustration I'm now using in my latest story. Based on how my mind wrapped around the concept of bone-wrenching, absolute terror, I bounced the idea around of how a heroine might react to it. Charlotte surfaced as a result of how remarkably she handled her fear, used it to motivate her to get out of the dark alleyway she was trapped in--and helped me realize her strengths, weaknesses, and uniqueness. From there, I was able to pinpoint the all-around premise for her story based on my understanding of her in that alleyway.
So characters come to me based on certain emotions I have in mind, or even dream about, and then I work from that point. Sometimes I don't get anywhere and I realize there's nothing all that special about them. Sometimes I get a ways in, and then stop working on the story altogether. One thing I do know about my fiction: my novels are character driven, no matter how strong the plot turns out to be. These characters have personal issues they must overcome in order to live happily ever after, but my heroes and heroines work as teams against larger conflicts throughout the stories. Go ahead, try birthing a character by thinking of certain emotions. It just might work for you, too!