You create a world/setting/campaign whole cloth, working on internal consistence, the feel of it, internal logic and a certain flavour. You go to great lengths to make everything fitting and everything has a place in this.
Pretty much, yeah.
At the actual table, you have every player hand in their characters and then aprove or disaprove based on whether that character fits into your preconceived scenario.
Yup. I even have a set of rubber stamps which read APPROVED, REJECTED, and RESUBMIT WITH EDITS, and a bright red Sharpie.
I also insist that my chair is at least three inches higher than everyone else's.
Actually, it begins with the system. I chose
Flashing Blades from among other swashbuckling rpgs because it does a great job producing cape-and-sword genre archetype characters. I recruited players interested in the system or the genre. We conducted chargen together at the table, during which we discussed ways to sync their developing character concepts and the setting and to the other characters.
I choose settings which allow for a range of different character concepts, and I enjoy characters which bend but don't break genre conventions. The roommate of one of my players watched us playing and liked the game, but he didn't really have an interest in playing a swordsman, so we kicked around the concept of a pacifist friar-alchemist for his character, if he can arrange his schedule to join us. If he wanted to play a steampunk clockwork automaton fencing machine, I would've politely said no - that's genre-breaking, not genre-bending.
I, on the other hand, ask my players what they like to see in the next world/setting/campaign and work from there on out. If no one has any interest in dwarves, I leave them out. If no one like playing a human, I leave them out. If everyone agrees on grim and gritty, I make it so. Fantasy Samurai Japan? Why not. And so on.
I'm not part of a 'gaming group' which bounces around from rpg to rpg, campaign to campaign - "We're finishing up Clyde's
Call of Cthulhu campaign, then we're going to alternate weeks between Maria's
Dogs in the Vinyeard game and some gm-less
Capes," holds no appeal for me.
My tastes in rpgs are quite narrow. I rarely play rpgs simply to play rpgs, but rather because a particular concept interests me. The closest I get to the former is my annual
D&D game with some of the local guys from Dragonsfoot; I have no interest in joiing a group of
D&D players just to play an rpg, however, and the only foreseeable circumstance in which I'd run
D&D again is for my kids (and I'd rather introduce them to
Traveller, but my daughter likes
The Black Cauldron and my son wants Castle LEGO for his birthday . . . ).
So I run what I want to run, and I find players who are interested in playing that game rather than creating a game expressly to suit a group of players.