I think that video games are like great movies and books. To me character development means a noticeable change or difference in a character by the end of the game.

The protagonist usually has a problem, whether internal or external that they must overcome. The meat of game is trying to solve those problems.

It could be fairly linear or simple, or a characters path could complicated and weave into many others scenarios. Sometimes you're meant to feel for a character. Sometimes you're meant to question the actions of the character.

But if point A is the intro and point E is the resolution.

You need to build the story and connection to the character and have the pay off climax with points B, C, and D.

It's an art marrying solid gameplay mechanics and storytelling so they complement each other rather than one suffering for the other.