First I pencil out the illustration at size, in my sketchbook. Then I scan in the pencils and use Photoshop to darken them enough so that they can be seen when I print them out. Then I place the printed-out pencils under a piece of watercolor paper (and both on top of my lightbox) and then ink the drawing directly onto the paper. Lastly I go in with the watercolors.
I already learned a lot just by doing this first one, so hopefully I'll learn A TON by doing another 99!