Story ideas and characters can come from many places, but I have found that looking inward and at personal life experiences generate some of my best ideas as well as my true-to-life characters.
I have an active imagination, so I like to create stories that take place in a world that I have created, which is why I prefer fantasy and science fiction stories; however, I also think about "what if" scenarios in the contemporary world. What if I would have chosen path B instead of path A when I was in high school? What if I would have applied myself better when I was a college student the first time I went to school? How would my life be different now if I had made different decisions? How would the world be different if a particular historical event, such as a war or election had a different outcome? Many times I combine the imagination with the "what ifs" and develop the ideas through other or future world settings.
No matter what the story idea is, I tend to focus on relationships among the various characters. I used to write fan fiction in the world of one of my favorite TV shows, and one of my friends commented on the "family feel" that came through in my characters. The relational quality of my characters is a part of who I am, so it tends to permeate my writing even though I do not intentionally include it. I have heard and read many times to write what I know, so that is how my characters are developed. Many times, my characters remind me of people that I have known or they are sometimes representative of different aspects of my own personality. It is through my personal relationships with others and intra-personal relationships between my different internal traits that the stars of my stories are born.
If I am to write what I know, then I need to know myself, my family, my friends, and the experiences of my life in order to develop ideas for good stories and characters.