The Glass Knight was a human paladin who, after being injured too badly to ever go back into battle, chose to have her spirit imbued into a glass golem rather than live out the rest of her years unable to defend Gilneas. Normally they're in stasis and a part of the Gilnean church's stained glass windows, but they wake up when the city needs defending.

Baku's character didn't actually come from a lore-first angle, but she's got fun stories too. We needed a some art of a giant snake for... some piece, it wasn't Baku because Baku didn't exist yet, and the artist sent back a big ol' python coiled around a tree. And the outsource manager was like "We need a bigger snake than that." So the artist, feeling saucy, sent back a screw-you bigger-than-a-fucking-village snake. And we were like "Well, we needed some badass art for Genn's Odd-nemesis," so she got promoted from rando card to legendary.

But, look up in the sky in her art. You see the lil' Blue Child hanging out up there? Not pictured: mama-moon the White Lady. Baku didn't just make an orphan of a baby moon, but presumably threw off Azeroth's entire gravitational center of mass in the process. She's a fucking monster, dude.

Ah, my hero!<3

The Designers come up with brief art descriptions for each piece around the same time that they're writing the VO and doing the rest of the initial flavor pass. These get handed off to the outsource managers, and they send that, the internal style guide, and some character-specific reference to each individual artist. So things like general vibe/setting, race, and gender are already set. I do animations and VFX, not card art, so I don't have first-hand experience with how specific the rounds of iteration get for them (it follows pretty standard several thumbnail sketches->pick one or iterate->several color roughs->pick one->polish->feedback loop), but all our card artists are kick-ass and our outsource managers are awesome so it always works out well.:) Most of the art cycle is between the artists and outsource managers, but Design has sign-off at each stage as well, so there are a lot of different disciplines looking at each piece.

The call on whether to use an existing character/race or a new one varies - sometimes it's because one or the other fits better with the card's mechanic, sometimes there's a gap in the vibe that needs filling, it happens for a lot of different reasons. There're pretty much always a bunch of auto-includes from WoW lore - sometimes they're easy to fit in (Godfrey's Pistol Barrage translates pretty perfectly to a Defile-type mechanic), and sometimes we just kinda have to find a home for them (Genn's gotta be a big-deal card, but... WoW lore generally isn't too concerned with even- and odd-costs:P). Every time I've talked to Design about a Hearthstone-canon character to try and get ideas for their FX they always have a little backstory in their head already - Countess Ashmore is a dragon masquerading as an elf, a la Onyxia; Lynessa Sunsorrow was a member of the Blood Knights who went rogue (lowercase:P) and formed her own splinter group; etc.

Usually there'll be one new race per expansion just because the concept artists will come up with something we fall in love with while they're doing initial exploration and style guide art for each set - the Tortollans and elemental plants in Un'Goro, the little mushroom people in Kobolds, and the lil' Witchwood Walnut Sprite in are all from characters we really adored during initial concepting. This is also how we tend to wind up with a fair number of the Hearthstone-unique legendaries (Hagatha was originally just a mood sketch our concept artist Jomaro did).

I guess the tl;dr of all that is just that it varies pretty widely based on the needs of the set, who gets inspired by what and when, etc. But hopefully it at least kind of answers your questions.X)