Some people begin with a character or characters. They want to know more about that character. That works, but you may find, if you just want to know more without a focus, that you write a very interesting character sketch. The character needs to do things and want things and be challenged in order to show, as Vonnegut said, what “he or she is made of.” This is a way to create character and story.
Some people begin with plot and try to fit their characters into that plot. I don’t think there are many writers that write this way, but some do. It works for them.
Elmore Leonard says he begins with dialogue. He needs to hear his characters talking. Then he kills off the ones who don’t have interesting things to say. He focuses on the ones who have the most interesting things to say.
Joyce Carol Oates also talks about having characters talk to each other to find her way into a story. One exercise she has for students is she has them write for a conversation between two characters. She has them do this for an hour. She says the writer will have something at the end of that hour. Not something to use directly but something.
I begin with a situation and then let character direct the story.
There is no one way, of course. You find what works for you through working, putting words on paper. But you will never “figure it out” completely. I’m grateful for this though I’m angry about it, too—sometimes. It keeps writing endlessly interesting though.