Hi Laboogie, this is actually a very interesting topic to discuss!
In about 99% of all design cases... Well, people borrow things from elsewhere. Very little is 'created' from scratch by the mind. Everything we think of exists because of something we have seen, heard, tasted, touched, smelled or experienced in some other way (think of drugs). Whether that is using a lizard as a reference for a dragon and combining it with a fish to make a sea dragon, or using a shape that happens to be shaped like a human being to create a wood nymph, or perhaps even using that stranger's appearance whom you met in the streets the other week.
Almost everything is borrowed from elsewhere. Even James Cameron's planet Pandora in the movie Avatar is based on things that exist in our world!
When it comes to my characters, I simply combine things that I love. I really like octopuses, so I have numerous characters who have traits or even appearances based on these creatures (ever imagined a less heavy and scary Ursula from The Little Mermaid?). I love fantasy, so I have a couple of elves and nymphs. Sometimes I combine elements to create their stories, too.
I think a place that you would really enjoy would be the RP Repository:
http://www.rprepository.com/
It's a site for roleplays but it has many lovely members who adore discussing how they create their characters and what resources they use. It might be worth a shot to look over there, as character design is a little bit different from actually drawing characters.