Game Freak explains how they create Pokemon designs

Coming from a Game Informer interview with Game Freak's Junichi Masuda...

“The graphic designers are obviously going to be the ones finalizing the look, but it’s not just the graphic designers who come up with ideas or draw the Pokémon. These ideas come from a lot of different places, the gameplay, the visuals, the story, and in the end those ideas just get centralized and designed.

One thing we always really pay attention to is treating them like living creatures so you have to try and imagine where it would live in the environment and why it looks the way it does, what would it eat? When designing Pokémon, and not just from a graphic design perspective, there must be a reason for why it looks the way it does and you have to think about why it might live in the Pokémon world.”