Characters are the most important aspect of a role playing game. Without good characters, there is no game.

What makes a good character? That depends on the player. The greatest of bards characters has no benefit to a player who doesn't like/understand bards. 

What makes a bad character? That depends on the game. Some play ridiculous, over-the-top, hack-and-slash games. Mary Sue characters are pretty much the norm in those. For other games its important to avoid Mary Sues. (Mary Sues are overly perfect, powerful, and/or ridiculous characters.) The Universal Mary Sue Litmus Test, which I didn't name, is a wonderful way to make sure you character is not too cheesy.  

World creation is important, but the characters' come first. Creating a world totally devoid of magic for three magic-users makes them rather useless. Whereas placing three characters' clueless about magic in a magic realm for the entire game is useless also. The world must fit the characters.