Story creation is (for me anyway) a lot like pearl creation for an oyster. It starts off with an irritating little idea in the back of my head that won't go away. If it doesn't get rejected during the process of adding layers to it, it eventually becomes a book. Here's how that layering process works:
Story summary. I try writing up a short informal synopsis of the plot. This is short--roughly 300-500 words. If I can't turn it into something that "sings," I know it's probably a dud and I drop it.
Partner review. Next I find out whether my idea sings to my wife and writing partner, Anette. Anette has a very good eye for stories that work--and those that don't. She's also perfectly willing to "speak the truth in love" when an idea doesn't quite make the cut, which is absolutely invaluable. But if she likes the story, I know I've got something worth taking to the next step.
Agent review. If Anette likes my idea, I turn the synopsis into something longer (ca. 1-2 thousand words) and more formal. I also do a little market research to make sure the story I'm proposing hasn't already been written. Then I send it to my agent. He'll let me know whether he thinks I've got a "big book" idea--one that's not just publishable, but has a "wow" element that will make it stand out from the rest of the market.
Proposal. The final layer (short of actually writing the book) is creating the proposal. If the story still looks like a "big book" after two or three sample chapters and a marketing analysis, my agent starts pitching it to publishing houses.
BTW, fewer than 1 in 10 ideas make it all the way through this process and wind up as proposals. But well over half of the proposals sell.
Cross-posted at http://fictionmatters.blogspot.com/