[font color='#000000']That depends.
Do you want to draw/design characters? Then you just need some paper and pencils. That's how most characters are designed.
Do you want to put already designed characters in a game? Then you need to know what tools that game uses. Every game is different and it depends on the programmers and what tools they chose to use. In the case of say Quake 3 I believe you can use 3D Studio Max (
http://www.discreet.com) though you will need either a special "plug in" that will allow you to save the characters you make in 3DSMax for Quake OR you need a separate program that will read a 3DSMax file and convert it to a Quake 3 character. Since modifying Quake is common there are probably programs other than 3DSMax for which someone has written a tool to convert from that program to Quake. Check out [a href="http://www.planetquake.com" target="_blank"]http://www.planetquake.com[/a] and look for the mods section and search for characters.
Like I said though it's different for each game / team / company. In 1998 at Sega of Japan in the department I was in we used SoftImage (
http://www.softimage.com) to make all our characters. I personally wrote software for Sega to support Lightwave (
http://www.newtek.com), Alias PowerAnimator and 3D Studio Max for other 3rd party developers to use.
Naughty Dog (Crash Bandicoot, Jak & Daxter) currently uses Maya (
http://www.aliaswavefront.com)
If you are making your own game then you and your programmers would choose which tools you think are best. Best might mean which tools your artists are most familiar with OR which tools the programmers know how to program for OR which tools have a feature you need that no other tool has yet. Since all the above products are fairly expensive you might decide on something like Blender (
http://www.bender.org). It's free, the question is, will you get support? I have no idea as I have not tried to get support from them. I can tell you then with the other companies, they do have support that is included with the high price tag and that support is generally pretty good. 3D Studio Max will even go so far as to give you the entire source code your 3D Studio Max (under a strict license) and even has a special version of 3D Studio Max called gMax which you can ship with your game so that players can create levels / characters / etc.
Other options if you just want to play around is Poser (
http://www.curiouslabs.com) I don't know any games that use it, probably because originally it was not a modeling package. It's is meant to be easy to pose. So for example if you wanted to make a digital comic book it would probably be great. But, since the first version they have added lots of features so it might be getting more useful for games.
The other thing you will need is a program to create textures in like Photoshop (
http://www.adobe.com) or Painter (
http://www.corel.com) or the Gimp (
http://www.gimp.org)[/font]
