Decide how you need to break apart your object based upon your storyboard. How will it move and also how many different types of shots will you need? Remember Close-ups, Medium shot, Talking, Head turns (what angles), special angles.

Does the character need to do anything specific that is crucial to who/what it is? Pick things up, do backbends, etc.

Once you have determined these you can begin. You can create your character in the computer, draw it and scan it, scan objects for a 3D puppet, whatever you imagine. But be sure to scan them into parts (not already assembled).

Photoshop

You can create your characters in PS, Flash, Illustrator, Painter, whatever makes sense for your project. Here are some tips for PS.

Using Photoshop you break up your character/object into different components. (suggestions listed below).

Be sure to elongate things like forearms so that they can fit behind the upper arms when things bend (so there is not an obvious cut between the limbs). The stamp or healing tool can work well to create “fake extensions”.

Save your components at different sizes so your character's resolution remains high.

Export each layer with a clear naming scheme and also into specific folders.

Export layers as png files so they retain their transparency.

Flash

Import your images to your library. Rather than click to import them one at a time, you can hold down the Shift key while clicking and dragging over the entire file list to select them all, before clicking "Open".

If you are making an animation to be exported to video (as avi. Etc.) then only use Graphic Symbols when animating your objects.

You now need to group tyour parts based on your whole. For instance, we need to group the left upper arm, left forearm, and left hand into a single group called "Left Arm". That way we can rotate the entire left arm without having to move the individual parts. To do this you will need to use "nested symbols".

Suggested character division:

Pivot points

Each object has a specific point from which it should rotate. Objects traditional have their pivot points set to the middle, but this does not work for characters.
Select your object and transform it to a Graphic Symbol.
Select the Tranform tool.
Click on the white dot in the center of your object.
Drag it to the proper pivot point.

Other Tips

Draw guides which you can erase later to help you plan a character's movements/progress throughout the scene.

Don't always rely on tweening. Sometimes you might need to move elements frame by frame.

Remember Onion Skinning. It can also help to plan between two extreme poses.