Further elaborating on Xana's points here:
My number one rule (that I'm sure someone likes breaking, but it helps me) is that whatever character you make in a fandom setting is not a spotlight stealer, they are just another character in an ensemble cast as Xana said. People often make fandom characters one dimensional and narrow without much thought on why that is, considering in most storytelling medium you have a wide swath to pull from on character personalities and perspectives, but it's really just one part fanboyism and one part ignorance. People want their character to be relevant, but they don't always understand the ability to MAKE that character relevant without making big leaps, which destroys credibility. A lot of this extends to how you write them.
For a Street Fighter example (Since it is the clearest one I can think of), Ryu is practically Generic Karate Dude, but because of his history and his backstory he is an iconic and notable character. He is not the only person that travels the world in Street Fighter and I seriously doubt he's not the only one looking to get his zen boner on about being the mightest warrior. Two things need to then happen during character creation:
1. Are the actual characters going to be involved at any point? If so, how do you handle that? Say you make someone who is literally Ryu for argument's sake, a traveling warrior looking to further his or her growth spiritually, physically and mentally. Since this is Street Fighter, I assume that there would be fighting in some manner of traveling surface, so how does that add up? How do you respect your own character while respecting the fandom characters? This is where universe knowledge comes into play. While Ryu may not be THE strongest guy in the Street Fighter universe, he has experience out the fucking ass and he routinely handles people that could be considered his better through experience, plot armor and force of will.
Through this, you need to understand what it means to make a character competent. Lots of people make the assumptions that flashy attacks and some kind of personality is what makes your character who they are, but I disagree. What makes a character competent is your handling of him from a writing perspective, you need to sell to someone that your character (if you so choose) is capable of going toe to toe with probably one of the most deadly fighters in Street Fighter without it coming off like wank fuel for your fanboy mind. How do you do that? Well, onto number 2!
2. You and your character need to understand that they're going to get their shit wrecked like a crash test dummy. For 80% of the characters in any kind of scenario that are experienced enough to handle these scenarios, you need to respect the other character through your own writing. You need to convey the feeling of what you're up against in a proper manner, you need to be able to write a loss and you need to be able to write a loss well, because as Xana says, it adds serious and considerable legitimacy to your character by having them win and lose. Since Ryu isn't a real human being, this is up to your own knowledge and research. Imagine what it would feel like to be hit by a guy who has been fighting for most of his life, In Third Strike, He's around 35.
So imagine a thirty-five year old martial artist who has been fighting for the vast majority of his life coming at you, look into stuff with similar backgrounds, Donnie Yen, Bruce Lee, ectera. The reason that the Street Fighter people are a place of extremes is because the level that the main cast is on is generally absurd, barring certain characters. So how do you legitimize your character? This is where I think a lot of people struggle with because they try too hard to drive certain points or personality quirks home to justify them being 'them', you don't have to justify a character existing, you have to justify why they matter. You have to find what makes the character do what they do, be up against what they're up against despite any sort of gap that they have. You do not need to have a Ryu to make a good character, you just need to make the character breathe.
So say you make a run of the mill fighter guy, better than most, but not really reaching the higher echelons of Street Fighter-dom. Where does that put you if Ryu comes at you with the aggressiveness of a fifteen-year-old angst fanfiction? Well, quite frankly you're going to be overwhelmed. But you also have a character who DOES have fighting experience, of somewhat equal stature, but maybe not as many years and surely not having fought the way that Ryu has. So in this particular instance, you need to pay respect to your character's own training while also respecting Ryu. Your character would likely have enough experience to understand that Ryu is doing what he is doing, but he might not have the training or the reaction time to properly defend or respond. Remember that a win is a win regardless of how ugly it is, and an ugly win determines the actual validity of your character, your opponent's skill and the fight itself.
Never, ever be afraid of making your character look like a joke if you actually have a solid basis for doing so. Making a fandom character that fits within a setting requires a lot of information about the setting itself to properly align your character with the universe, the characters in it and so forth without being obnoxious. I cannot tell you how many people got their boners nice and hard over me mentioning I do fighting game ladies and their characters amounted to "My character is (fandom character here)'s biggest fan/protege/stalker/PLEASELETMEFUCKHER", and it was extremely irritating. Understand the perspective of the story you want to tell, understand what might be involved and for god's sakes, make sure the character is actually doing something other than trying to fuck someone.