Read the story to see what kind of reference imagery you need. Some stories may provide you with explicit details such as the lightning bolt shaped scar in Harry Potter, while for other books you will have to use your own imagination to figure out how to further the story.
Make two lists of types of imagery you will need. One list is for things you definitely need, the second list is for supplementary materials that you think may help the story, but that are not essential. This can also include things that are ambiguous, for example if the story mentions his pet Stan, but does not specify what kind of animal Stan is. In this type of case, it is best to go with your instinct of what will work best with the story, so collecting images of pets can help you decide on the right image.
Research the objects on your list by finding multiple image angles of similar things, such as people, children, animals, or cars to get an idea of how the image should look from every angle. Sometimes the initial angle of a illustration just doesn't work, so it is best to have reference material from multiple angles. Keep in mind that any other characters in an illustration of a certain angle should also be shown from that angle, so collect appropriate reference images for them all.
For example, if the story calls for an illustration of a mother and child walking with the pet, you should have images of a child of the appropriate gender walking with an adult female. You may need images from above, behind, in front or from below. If you can't get a picture of both a child and an adult together, you can use separate images, but make sure that the angle is as close to identical as possible in both pictures. You can find images online, in books and magazines or you can even take your own photographs.
Collect the images in a single location. Depending on whether you are using digital images or hard copy ones, you can do this in different ways. To make a digital copy of an image on a PC save the image to your hard drive. Then go to your picture folder, make a sub folder with a name like "reference material" and move the picture into it. You can go into the sub folder and open another sub folder for specific types of reference material depending on your needs. This is the best option if you are using a large amount of reference images and want to keep them organized. For hard copy collections it is easiest to have separate folders or envelopes clearly labeled with its contents. You can put photos, downloaded images, drawings, art, and photocopies in the envelopes.
Use your reference images to draw a basic rough draft of each illustration. This draft should include angles, lighting and possibly include color ideas. Using a rough draft will let you erase or redraw sections or angles that you feel need work before creating the final illustration.