So choosing the right name is important. It has to ring true to you. But it's SOOO difficult. When I was writing my novel Fallenwood, I took days to find the name Hieropraxis - the name of my bad-guy sorcerer. It's a name that means "sacred knowledge put into practice".
In the course of my searchings, I've discovered some things about names. Coming up with names for my main characters is always more difficult than the sideline character names. Personally, since I write fantasy, I wanted my novel to be different, so I didn't go with the traditional hard-to-pronounce things. I absolutely hate it in a fantasy novel when I get to sentences like, "And then the son of Turithal-et-Nijja went to the Tower of Kaliaili with the sword of Ru-dan-nita in the country of Baliahkkahtra" because it not only slows down the story, but (to me, anyway) renders it silly. So I decided to go with names that are relatively easy to say and pronounce.
For my main characters, I chose names that I really, really liked - Ash, Will, Greymalkin, Edward - names that just seemed to stick in my memory. Terces was a bit harder - he's my jester character. For his name, I jotted down any words I could think of that might be close to a jester's name - like free writing, and then messed with the words and turned them backwards and combined them and just generally played with the words until I got to the word "secret" and flipped it backwards - Terces was born.
For a lot of the minor characters that showed up, I inserted the names of my friends. The names Aaron, Lee, Ian, Becca, Amber, and Sarah show all show up in the novel and those are friends of mine.
I like to consult baby name books if I absolutely can't think of a name for a person, but I usually don't find names I like there. I seem to have better luck with just observing names that I really like or ideas that seem to stick with me.
For place names, I had read somewhere that if you get stuck on these, you should read the names on a real map. So that's what I did for a lot of the place names, is took names of real places and mixed them around until I got something pleasing.. However, I got stuck when it came to naming the small towns that my group went to on their journeys. For this, I used a little-known secret of the world wide web - a gem that is to be pulled out only in case of emergencies where you're hopelessly stuck and need a quick name - Yes, I'm talking about the Rinkworks Fantasy Name Generator - http://www.rinkworks.com/namegen/
I've found that there are no hard-and-fast rules when it comes to naming things in fiction. As with all else in life, you have to make your own rules to go by. But I hope this provides some examples of how it can be done.
If you're a fan of fantasy, be sure to check out my novel Fallenwood, soon to release from Decadent Publishing!