Flaws are one of the important aspects to develop in a character. And also can be tricky to get right. So, here’s what I have found works.
A character needs a “wound,” which is an event in their past that causes “the lie.” The lie is a lie that your character believes (e.g., a character may think that they are worthless), which leads to the fatal flaw (e.g., if a character thinks that they are worthless, then they may have no self esteem).
For example, if a character had a confidant who decided to go and tell their secrets, then the lie they believe would be that people are untrustworthy. As such, their fatal flaw would be that they don’t trust anybody.
Another way to look at it would be (as the Fatal Flaw Thesaurus does) to first look at a character’s goal, then to look at their inner motivation followed by what they need. What the character needs will cause this inner motivation and will stem from the lie, which stems from the wound.
For example, if a character’s goal is to protect people from some sort of harm (which he will need their trust to do), then his inner motivation is to be trusted. However, he can’t be trusted because he can’t trust other people because he believes other people can’t be trusted (the lie). In this case the lie stems from the fact that the character had a confidant who decided to tell his secrets. In this case, the flaw would be that the character doesn’t trust people.
Another way to think about this way of developing a character’s fatal flaw is in philosophical terms. Each step that they take to get to their goal is a subordinate end. Their goal is also a subordinate end. But why they are after their goal is their ultimate end. That is to say that (in the example above) the steps that the character takes to protect people (like getting them to trust him) and the act of protecting people are subordinate ends used to achieve the ultimate end (to protect people).
Additionally, by the definition by an end, your character is motivated by some disposition. Find this disposition, and you are well on your way to figuring out a character’s fatal flaw.
Either of these ways of thinking about flaws are not necessarily sequential. By which I mean to say that you can start with whatever information you have and go from there. Start with the lie or the wound or wherever you want to. However, I do think that the second method works best if you tend to think of plot before characters because the second method starts with the goal, which is rather plot related. If you think of characters first, then I recommend the first method because it starts with the character.
Best of luck working on fatal flaws!
Note: I have mixed what I have found what works with what Angela Ackerman’s and Becca Puglisi’s book The Negative Trait Thesaurus: A Writer’s Guide to Character Flaws recommends doing to develop your characters’ fatal flaws. And I highly recommend getting a copy of this book and the other books in the series. They are very helpful resources for writers.