Characterization is a presentation of the personality of the people who populate a story.
Characterization is primarily a depiction of motivation and motive. The reader must understand what makes the characters act in the way that those characters do.
It’s been said that one of the truest tests of good literature is when you can discuss the characters as if those characters are actual people: when you can psychologize over them, talk about their strengths, their gifts, their shortcomings, their personalities, their deeds, all as if these people are real.
To create such a character — which is to say, to create a truly convincing character — the writer must first understand what motivates the people he or she is creating. By that I mean, the writer must have a fully formed idea of what the character’s premises and personality are. After which, by means of the plot (i.e. the action, which includes each passage of dialogue), you proceed to present the character’s motives and (in turn) their personalities.
Know what motivates your characters.
One of Shakespeare’s greatest living admirers (and arguably the world’s best-read human being), the critic Harold Bloom (not to be confused, as he so often is, with that hack Howard Bloom), honestly believes that in creating so many convincing characters, Shakespeare went far in creating our modern-day conception of humanity itself. It is an incredible statement, and yet I, for one, won’t argue it. In Harold Bloom’s own words:
“Shakespeare, who at the least changed our ways of presenting human nature, if not human nature itself, does not portray himself anywhere in his plays.”
Even more interestingly, perhaps, Mr. Bloom goes on to say this:
If I could question any dead author, it would be Shakespeare, and I would not waste my seconds by asking the identity of the Dark Lady or the precisely nuanced elements of homoeroticism in the relationship with Southhampton (or another). Naively, I would blurt out: did it comfort you to have fashioned woman and men more real than living men and women? (Harold Bloom, Genius, p. 18).