Randomly images/ideas come to me. They may be in the form of nightime dreams, or day dreams, I may listen to music, read a book, or see a movie which inspires me. Some how, in my mind, bits of a story form. If these bits create the beginnings of a story that I think has potential/interests me, then I will persue the tale.
Usually, a story will be like a blurry image. I won't know who or why, just what and then my mind goes to work. Here's an example: a scene with two people fighting. Who are these people?What is their back story? Why are they fighting? Who will win? What is there to lose? What is there to gain? How will their own stories change depending on the outcome of the fight? Where will they go afterward?
Once I start working out a story, big plot points will jump out at me and I'll think - this must happen! - and I will work on connecting the dots, getting from point A to point B in the most logical fashion, while keeping in touch with my characters, my world, my limited magic.
As my tales grow, the characters may pull the story into a new direction, that I would not have forseen until they became complete entites with their own wants and needs. But in the end, as the story comes to a close, I just hope I did the original image justice.