There was an excellent article today on Novel Rocket about characterization by Cindy Woodsmall. She has four "B"s to use: Before. Behind. Between. Begin.
This is a succinct yet very insightful way to understand your characters. Here is a quote:
Begin your novel armed with the full knowledge of who your characters are - the before, the behind, and the between. Then ask yourself, what would this person do - how would he or she react - when caught in the emotional or physical destruction in which your plotting places them? Once you've completed these steps, you won't have to know the answer to how they would react when placed in different circumstances. The character - who that person is - will dictate what he or she will do in any given situation. Each character will be true to himself or herself, because you know who they are and from where they have come.
I've got nothing to add. Just go read the article. If you're a writer, you'll be glad you did!