I like to create countries and cultures much like I create characters. I give them personalities and motivations, obsessions and loves and hates, much like I would give an imaginary character. Different people from the country will be different, of course, but I like setting a general personality for the whole nation. Now with a character, you might try to explain some of their traits with a backstory, like the classic I'm-so-evil-because-I'm-insecure-because-I-was-abused-as-a-child...but while this can be really fun, it's easy to overdo it. But with a country or a culture, now...you can just go on forever. Example: Country A and Country B are at war because of a long-running enmity, because of a war between them several years ago, because of Country B's desire for more land, because of Country B's overcrowding, because of all the immigrants flooding into Country B from Country C, because of the oppression of peasants in Country C, because of the increasing troubles of the aristocracy in Country C, because of the emerging middle class threatening the power of the aristocracy in Country C, because of the establishment of wide-spread trade, because of the establishment of peace in Country C, because of the work of Country C's aristocracy to bring peace to the countryside, because of the legacy of the bloody wars between Country C and Country D, because... And every one of those reasons just invites more elaboration and development and connection to other developments. So basically, when I create countries that have real personalities, that have different motivations and opinions and problems and desires - that, in short, are characters - they create history just as lively characters create plot.
I also find it helpful to think of history in terms of trends and movements developing, interacting and dying, instead of isolated events with dates. It feels much more human that way!
Alright, I just answered the question in the title of this topic without answering the question in the first post at all.

To actually answer the first post, I usually write down actual stories and accounts of events in my world's history, and then keep the general outline in my head. Probably a bad idea, but that's how I do it. I also occasionally make timelines to help me keep things straight and better see what events were contemporary to each other - I like this software for that task:
http://thetimelineproj.sourceforge.net/Mistress Rwebhu Kidh wrote:
When I need to find out about a particular area of history, I just make a story about it; not necessarily write the whole story, or any of it, or even try and keep it in the decent borderlines of the necessary plot for a publishable book. I just make it up; and when historical figures become characters, they're easier to deal with for me. It works.

You want a complex political history for one of your nations? Make up half a dozen influential people with conflict, goals, and beliefs that far from mesh, then watch what happens. And the longer you follow them and their descendants through the years, the more history you'll have.

Yup! Exactly. I do a lot of my history this way, though I also have a lot of abstract national entities doing stuff. The fun thing, as you said, is that you can make it as insanely complicated and rambling as you want, since you're not actually going to write a novel out of it all and so it doesn't need to fit neatly into a story.
