I am, unlike Megg, a plotter. I design the world and all of the rules that exist in it before I ever set pen to paper (or fingers to keyboard) with regard to the plot of the main story. I usually start, although not always, with a new idea for magic. All of the fantasy settings I create are based around their magic, and the very shape of the world is created and driven by the magic that inhabits and lives within it. I'll design the new magical system in a couple days, focusing generally on the capabilities, and how common I think it is.
I do it this way because I feel that magic is the most important actor and differentiator in a fantasy setting. It is, in the main, what separates fantasy from alternate history. There are, after all, brilliant retellings of the military campaigns and intrigues of yesteryear, but none of them have magic. Thus I see magic as the root of fantasy, although I know there is much more that goes into creating the whole ethos of a fantastical world.
Once the magic is down and recorded, I set about building the world. Now, most of the time, magic determines this as well. For instance, if I built a setting around my Ferrous Timber magic system (Part 1, Part 2), there would be a fairly high degree of sophistication of metallurgy. Working backwards from that, it means larger cities and towns, and developed trade. Put together with the need for large quantities of fuel for metal smelting, and the setting, in general, would have a lot of wood and mountains, and probably a faint resemblance to central Europe.
So now that I know what kind of civilization would exist in the world, I pick up a pencil and start sketching various maps and continent shapes, until I have one that seems appropriate to the world. This map of the Splintered Lands was created by me doodling until I had a world that looked like it had been broken apart in a cataclysm. Then it becomes a matter of filling in the terrain and the major habitations. Foliage and mountains first, then rivers, then cities and towns. However, I do tend to leave large blank spots on the map, and only fill in the most important overall detail at this point. I am a plotter, and I don't start writing until I have a world firmly in mind, but I know the world that I create over the course of a week or so isn't the entire world of the story, nor will it ever be. Thus the need for blank spaces that can be altered according to the needs of the story.
Although I have my overall view of civilization by this point (it's dictated by magic, remember), what I don't have is the actual characteristics and locations. Generally, I put cities in the most central places, and then a ring of towns around them, and on the trading routes that link the cities. In the areas where there are no trading routes, or little in the way of towns, I dot some villages around, enough to show habitation, but not much more.
The characteristics of the population are driven by the terrain, and are adjusted by the needs of the plot. For instance, those in Bhreac Veryan borrowed a little from the Ottomans/Arabians (desert dwelling), a little from Fascist Italy (politics), a little Roman (partial military), and bits and pieces that I made up and bolted together. The Ottoman and the Roman thefts were because I thought it fight their in-setting location (Ottoman) and history as the overarching empire (Roman). The Fascist Italy is because they are portrayed as villainous in the first books and looking to recover the glory that was once theirs.
After that, I tend to shape the most visible pieces of a kingdom's equipment so that it suits the culture and temperament of the city to which it belongs. In my case, this is usually military equipment. Bhreac Veryan, for instance, harvests the plates off of large insects and sews them together to make lightweight plate armour, while Tri-Hauwcerton, another kingdom in the same setting, fashions theirs from overlapping layers of steel and stone, making it very strong but very heavy.
Now, you'll notice that I still haven't touched on religion. Personally, I tend to leave it out of world building, and leave characters to develop or mention a religion as they go along. Some do, some don't, but they all speak what they believe in.
So, there's a little look into the mind of a plotter when it comes to world building, and the process that he goes through. Now, sometimes, when I'm feeling just like writing, I ditch everything here and just write, but if it's a novel, it's getting the full treatment. I do not want to write myself into a corner because I didn't know the rules of the setting. Better safe than sorry, I think.