Creating a fantasy world can be as simple as having a daydream. But if you want something more tangible, you're going to have to put it down on paper, canvas, film, or a computer program. A fantasy world begins with its creator's motive, and from there it develops into a construct that attempts to relate the creator's motive to the intended audience, whomever that may be. The question of how to create a fantasy world depends heavily upon your good judgment and study. There is no absolute list of rules that will produce ideal success every time.
Determine your primary artistic intention for the fantasy world. The key question to ask yourself is what you want to accomplish with it. People create fantasy worlds for many reasons, with many goals in mind. Deciding which of these goals is most important to you will give you a major focus around which to structure the other elements of the world. Common goals include character development, storytelling, thematic philosophy, vivid description, entertainment, and so forth. Elevate one of these above the others.
Establish a business model for your fantasy world. This is only relevant if you have an economic intention for the fantasy world, but, assuming you do, then your priority is to identify who your audience will be and how you will attract them. Think about lures, hooks, and other grabbers that will capture attention and interest.
Develop the functional theory for your world. This step is only necessary if you will be building a functioning virtual world (such as video games Second Life or World of Warcraft) with which your audience can interact, as opposed to a book or a film. To develop a “functional theory” means to decide what the virtual world interface will look like and how the virtual world itself will function. These issues are laid out extensively in Dr. Richard Bartle's book “Designing Virtual Worlds,” and his book includes many references to other books and sources that will help you along in this regard. Study this subject well before you proceed.
Create the setting. One of the major distinctions between “fantasy world” and “fantasy story” is that the former is more comprehensive and has more going on in the background. In a story, economy recommends that no words go to waste, but in a world the whole point is to have depth of setting. You will need to create landforms, species, languages, technologies. Study the earth sciences for physical perspective, and study history and psychology for cultural perspective. Pay attention in particular to the folkways of primitive cultures. The book “Albion's Seed” by Dr. David Fischer discusses the cultural concept of folkways; use this concept as a guide to your own work.
Create the plotlines, characters, and themes. Depending on your artistic priorities for the fantasy world, let one element take the lead, and structure other elements around it. After completing this step, your fantasy world will be intact and ready to spawn many fantasy stories.