Well, start with their appearance. A character with a big, floppy hat or colorful polka - dot shoes can be really eye - catching for kids. Then think about their desires and fears. A character who really wants to fly but is afraid of heights has an internal conflict that can drive the story. And don't forget about their voices. A character that talks in rhymes or with a silly accent can be very engaging.
One way is to base characters on real people or animals the children are familiar with. For example, a mischievous cat that gets into all sorts of funny situations. Another idea is to give characters unique traits like a superpower of making things disappear when they're shy. You can also create characters with different personalities that contrast each other, like a very brave little mouse and a cowardly big elephant. This can lead to interesting interactions and stories.
To create engaging characters for children's stories, consider their goals. If a character's goal is to find the lost key to a magical kingdom, it gives the story a clear direction. Also, let the characters grow and change. Maybe a selfish character learns to share during the course of the story. And use humor in the characters. A clumsy knight who always trips over his own sword can make kids laugh.