To me, it's pretty simple.  It's a matter of coming up with a concept for a character (often as little as a personality and a few key events) and then having that character live his or her life.  Let his voice guide you in making decisions, etc.  As a DM, I get to do this with NPCs, which is quite fun -- because it lets me explore many different characters (or aspects of myself, if you prefer).

Of course the nice thing about Khali is that we're not trying to force our own definition of roleplaying on you.  So... discuss below.  What does roleplaying mean to you?