There's no best way, just as there is no best world and no best story.
Generally, people want to build worlds in order to tell a story. What sort of story do you want to tell? I can think of at least three categories of story, which depend on the level of particularity you desire.
The most general would be something like, "I want to explore a world which is 90% water, with wind-powered ships sailing between the islands." Right. Now you need to start from the top and work your way down. You really ought to think about weather patterns in the absence of large landmasses (storms with large fetches will likely get ferocious), just how big the islands are going to be (a few large ones or a whole bunch of little ones), and how shallow the oceans are. Umm, and anything else you can think of. From here you can start thinking about ecologies. Move on to creating your society.
At the lowest level, "I see a young woman, cast on her own resources by the death of her parents, making her way in the world." This, of course, mandates an entirely new set of priorities. Her society is what counts, and from that you start creating the tech level (low tech levels imply low agricultural efficiency, and most people live on the farm - just an example) to support your society. Of course, even a low tech level can have decent-sized cities (Rome, for instance) and you can take advantage of that. From there you fill in the physical aspects of the world, but these are less critical to your story (most of the time - but watch it).
In between, you might start with the society, and use individuals to illustrate it, "I see an egalitarian utopia, current tech levels, under threat by primitive invaders." Here the society (in the sense of the collective function, more than social interaction) takes center stage, and things like planet-building become less important.
With that said, it's easy to get things wrong. On the functioning of medieval societies, Poul Anderson's On Thud and Blunder is instructive. There are other articles out there on various aspects of world-building.
With that said, paying too much attention up front to the world is not necessarily a great idea. Most stories are about individuals, and to some degree you can always come up with details that support your story. Getting too picky about the setting rather than the characters is not a sign of a good story. Plus, of course, there's the matter of style. If you can get the reader invested in the characters early, and you keep the story interesting, you can get away with a lot. It's called "suspension of disbelief". You have to be careful not to drop some howler into the plot which breaks that disbelief, but that's a matter (as I say) of style.
Finally, of course, there's magic. With magic you can do pretty much anything to your world and (again, it's a matter of style) get away with it. If you want to do this, I recommend reading older fantasy for inspiration. The current fashion in magic is peculiarly constrained and mechanistic, and often worries about things like energy flow and sources. Trust me, this is a terribly limited view of how people can conceive of magic. Prior to, let's say, the last 20 to 30 years magic was commonly written about in much more powerful terms.
