This is a highly edited version of my Villain Guide posted on Hero Realm. I've basically taken out all of the superhero references to avoid confusion. I think the most important point is the first - 'Evil' is socially defined, and is never a label that the truly nasty apply to themselves. Hopefully this will help people get into the minds of villains, at least a little.
The Good Villain Guide
Things I try to remember when working with villains:
1) Villains Are Heroes Too
No villain thinks of himself as 'the bad guy'. He will always have a justification for what he does, no matter how illogical or unconvincing. These reasons range from cultural or ideological all the way down to 'looking after number one'.
No villain is ever going to describe himself as 'Evil' unless he is trying to scare the heroes. He doesn't mean it.
2) Attitudes To Killing Are Cultural
Not all villains are necessarily killers. A skilled jewel thief, for example, may carry a gun that fires tranquiliser darts because he doesn't want to seriously hurt anyone.
A hero from an alien world, by contrast, may have no problem with killing an enemy, simply because his culture allows it.
3) A Good Villain Is A Smart Villain
Cannon fodder can be stupid. The master villain has to be very smart - and demonstrably so. Any master villain who loses because he is a moron will have no respect from the reader, and, worse, will have everyone wondering why his minions follow him in the first place.
Try to name a single great villain who is a fool, and you will see what I mean...
4) Insanity Is Overrated
Mostly a writer will use 'insanity' as a shorthand way of saying he doesn't know what makes the villain tick. Avoid this particular shortcut at all costs.
There are a lot of 'insane' villains out there, but you can count the good ones on the fingers of one hand.
5) Good Villains Have Believable Motives
Your villain does what he does for a reason, be it power, wealth, prestige, the advancement of science or anything else. He might be driven or forced to it, he might even have the best possible motives combined with the worst possible methods.
Your villain should always keep his main objective in view. To a good villain, the heroes are most likely an obstacle, not a goal. If they can be circumvented or distracted or otherwise gotten around, your villain should attempt this method in preference to a direct confrontation, unless he is certain of victory.
Revenge for the death of a loved one is a good motive. It also moves into a grey area...
6) A Villain Is Not Always A Villain
Sometimes the person or group opposing your heroes will have a good and justifiable reason to do so. It may be a question of honour, or misunderstanding, or that they feel the heroes are responsible for the death of someone they loved.
7) Villains Must Act Plausibly
A psycopathic killer does not spare the hero's life because he is 'not worth killing'. A time-travelling conquerer does not invade when his known enemies are at their strongest. A clever villain does not mount a direct attack upon the heroes unless he is certain of winning. No villain fights a hero who always beats him unless he has no means of escape. These things are implausible, and ruin the flow of your story.
Similarly, your villains must act within the scope of their powers. This works both ways. Your villain should not suddenly pull powers out of nowhere to allow an escape or a win, but then neither should the heroes.
If you are being forced to write a hero or villain 'down' in order to make the story work, you need a new villain.