A complex, painstaking process by which an entire fantasy world is constructed, by way of a sentient being's own imagination. Other tools may be used as well; particularly helpful are visual references such as drawings, paintings, animations, even CG renderings of landscapes, architecture, etc.
The process varies, but many well known sources have made great progress in this field, including but not limited to:
Further documentation on a certain process known as the Zucha WorldCrafting Standard (ZWS) forthcoming.