1. First, you must put the game into its proper categories and genus. (The Game itself is the species). Ask yourself:
A: Will this game be self-contained, taking no ideas from outside itself (sports, checkers, and card games fall into this category) or will it be based on a concrete reality (Monopoly and Risk fall into this category). I would say that word games are midway between the two categories.
B. If it is concrete or a word game, choose the reality on which it is based. For example, the game called "The Great Battles of Alexander" is based on...guess what. But it is slightly more involved than that, as that particular game is based on the realites of combat at the commander's level. If it is a word game, you already have the reality chosen for you, although we could play in Quenya instead of English. If it a self-contained game, you have to decide on the natures of the things that can be used in the game. For example, soccer requires a thing called a soccer ball, a thing called a soccer field, and two things called goals.
2. Next, decide on the object of the game. There are two types of objects. Quantum objects state that when a player achieves a certain state of game-being or fulfills certain steps in a certain order, they win/lose. Mathematical objects state that when a player demonstrates that they are the best at playing the game, usually by the accumulation of the most points by a certain time, they win.
This object must be translated (Algernon...) into terms relevant to the game. (This can be done by saying that certain things or states of game-being are worth points.) For example, chess has a quantum object that is stated in chess-relevant terms as checkmate. Life has a mathematical object that is stated in life-relevant terms as having the most money (can be seen as points instead of #$'s) by the time every player reaches millionare acres.
3. Next, write the rules. This is the hardest part. In a non-democratic game, I would go about it in this way:
A. In a concrete game, find how the real-life equivalent of the object is obtained and do research into the elements that go into this process. For example, in the game Soldier Kings, the object is to have the most money-giving territories by the end of the game. This translates into money-rich regions of the world in real life. Now in the Seven Years War, in which the game is set, this was done by military conquest and diplomatic wheeling. Both of these depend on a lot of factors, such as liquid assets, population, atttitude of the King of England toward the Doge of Venice, Native American Cannibalism, etc. Translate these back from real life into game terms.
In an self-contained game, you get to make all this stuff up yourself without translating, but i will give an example anyway. In Topple, the object is to gain points. The game makers decided that the method of gaining points is to stack as many discs as possible without toppling the delicately balanced board .
B. In a concrete game, the next step is to decide what elements to keep and how they are expressed in game terms. For example, the play-by-play movements of the squad commanders is not an element included in the World War II game Axis and Allies, but the realites of winning and losing battles are expressed by rolls of the dice applied to a "Combat engine" (I'm sure Dr. Thursday knows what a Combat Engine would be). Because the realites of combat in WWII are different from the realites of combat in the Seven Years War, the combat engine is different in Soldier Kings.
In a self-contained game, the next step is to provide your limitations that increase the game's playablility, fairness, etc. For example, in Topple, you are required to place the discs in dents on the board and the dents you may choose are limited by what roll you throw. You also may place only one disc per turn.
c. In a non-democratic game only, you must test the game and revise the rules. I have tested many games that I have made, and have not liked any of them except when I made Risk based on a map of Ancient Greece. But that time, the rules were all written for me by someone else...
4. Then, play the game!
In a democratic game, the steps are teh same, except that we get to vote on what all the elements are.