A quick precis of the Character Creation section from the Deliria core rules:

A Twist of Strangeness

The greatest heroes are ordinary people doing extraordinary things.  Faerie tale tradition recognizes this fact:  "the most beautiful princess in the world" is still just a girl, not a killing machine who races griffins in her spare time.
And so, in that tradition, start with an everyday concept when you craft your character; think bank-teller, not vamp-elven battle cyborg.  From there, twist that concept ever-so-slightly until you have the makings of a mortal hero; the bank-teller can read auras, and one day she spots someone who doesn't seem quite human...
(Deliria core, p224)

How it's Done:

Character creation takes place in 4 steps:

1. Tell me a story
2. Tell me who you are
3. Tell me what you can do
4. Show me

You don't need to worry about step 4 - that's the number crunching and I'll take care of that.

What makes you special?

Doesn't matter where the points go on the character sheet.  What distinguishes my character from other folks?  That's what's important.  Is she incredibly strong?  Unusually charismatic?  Frighteningly analytical?  Is she a computer genius, a black belt, an ace journalist?  No one is good at everything, so decide what works best for the concept you have in mind.

Step 1:  Tell Me a Story

Each character has his or her own tale.  Before the books are opened and the traits come in to play, each player tells a tale about the person he or she wants to create.  This step is as important as the traits that will define the character in game terms, becasue without a sense of your imaginary "I", those traits are just marks on paper.
The story should be brief - 2 or 3 paragraphs, perhaps, and contain opening, conflict and resolution...

Step 2:  Tell Me Who You Are

Short descriptions go a long way when you're humanizing a list of numbers and a dream.  Hence, the Faces traits can become the most entertaining aspect of character creation:  The look of the mask you create and wear in the game.
Backstory:  What's your story?  You've already covered this in step 1, to some degree, but you get a chance to flesh things out.  Where'd your character come from?  Who does she know?  How does she feel about them?  This person you're creating didn't just appear out of nowhere, fully formed.  She has a history, and even if she can't remember it (a background element in itself), others undoubtedly will.
Portrait:  What does your character look like?  What does she do?  How does she talk, look, smell, act...  Portrait includes physical impressions but it ought to go beyond that.
Obstacles:  What self-imposed quirks get in your character's way?  Therein lie some major story hooks...
Passions:  Passions compel your character to do her best...  and often her worst as well.  Since faerie tale heroes tend to be a passionate lot, these ought to be pretty strong desires indeed.
Secrets:  What's in your metaphorical closet?  Grandad weild black magic and kill a few dozen people?  These are things that could damage your character if/when they are uncovered.  You may know these secrets, your character may not...

Step 3:  Tell Me What You Can Do

Mind / Body / Spirit.  These are the 3 Key Grace Traits.  Your primary attributes.  Range from 1-10.  The average starting character (should there be such a thing) would have a score of 5 in each.
Vocation Traits.  Essentially, the skills list.  What does your character do for a living.  These can be as broad as "Journalist" - implying some degree of skill with a computer, contacts in the wider world, a press pass to get you into fancy events or past bouncers - or as specific as "Computer Programming (Python Game Design)" - which does exactly what it says on the tin (although it would also imply some degree of logical thought processing, a good handle on game rules and logic, a creative flair...  You see how these things work?).  Scores range from 0 (unskilled - for example, me on a violin) to 7 (legendary - for example, me being me.  No-one in the world is better at that than me.  OK, the Higgins bloke playing snooker.  He's just become world champion, that'll do.)
Favours:  Legacies.  A Legacy reflects some incredible gift of inheritance or birthright and offers powers ranging from the unusual to the downright inhuman.  Some legacies are fairly mundane (like wealth or fame), whereas others are clearly paranormal (like shape-changing).  There are also Accords and Wyrds - I'll discuss those with each player individually.  As this is where the characters depart from the average, run-of-the-mill mortal, I'll discuss this aspect of each character with the players individually...