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(Not about Character Design, but the Character creation options in games, and how awesome some gamemakers make those creation options. (Though header picture says differently, sorry) Character Design post will come an other time.)
Character creation is typically the first step taken by the players in preparation for a game. In its most comprehensive form it includes not only a game-specific representation of the character's physical, mental, psychological and social properties in terms of statistics, but also often less formal descriptions of the character’s physical appearance, personality, or background. During play, only a character’s appearance is usually described explicitly while other traits are characterized indirectly, with the exact statistics known to the character’s player and the game master, but not necessarily to other players.
Example of Character Creation on games:
World Of Warcraft
Character advancement refers to the improvement of a character’s statistics later in the game. The player will modify existing stats and add new ones, usually by spending experience points or when gaining a new experience level. Character advancement typically uses similar rules as character creation. To avoid unrealistic sudden changes in character concept, though, character advancement is usually more restricted than the initial character creation. For example, attributes are almost always harder (if not impossible) to change during character advancement.
Source: Wikipedia (edited)
Character Advancement example:
Tales Of Pirates
(Click for larger picture)