I have recently been watching back over some old Stephen King interviews (he features several times as a reference point in my life and writing). I noticed that on repeated occasions when he is asked this question, his reply is usually along the lines of '...I don't know, and if I did, I wouldn't tell you...'
Not so for me. To date, I am pretty clear where my ideas have come from. They are simply drawn from my own experiences. Sure, they are embellished and elaborated, sometimes beyond recognition, but they are all rooted in a specific fact. I like to set scenes in locations I have visited. It makes it easier to include some accurate detail. Other times, the link may be so loose as writing a time-travelling story because I have such strong memories of watching Back to the Future as a teenager.
With regard to how I then develop these ideas, my mind is always racing. Even while I am writing, I am paragraphs, even chapters ahead of myself. Little thoughts pop into my head, and I capture them as notes in my Word document. The page ahead of whichever chapter I am writing always has bullet points of things I need to remember to include or go back and correct.
And yet, although everything originated in fact, with an anchor I can invariably recall, the end result is pure fiction (the Echoes of a Boy biographical parts aside). The names are people I have known, personalities and traits jumbled, of course. But everything has happened in one form or another. I have no magic formula.