Consider the age of your reader. Adults read stories for very young children aloud; therefore, more difficult names like Raphael or Geraldo can work. Stories intended for beginning readers, however, require simple names they can sound out without help, like Tom or Mary for example.
Match names to personality traits. The Care Bears are famous for this naming option, as are the Seven Dwarves. Even very young children understand facial expression. They can easily differentiate characters named by personality.
Create names based on overall physical appearance. A brightly colored fairy named Sunshine or a kangaroo named Hoppy resonate well with children who understand the correlation between the character names and their appearance.
Choose names that coordinate with a character's ethnicity. Dora and Diego from Dora the Explorer follow this rule of thumb. Naming your characters in such a way can also promote discussions between children and their parents or teachers about the different cultures in our world.
Pick names that are popular for your characters. Look in current baby books and online to find the top baby names, and select from the most popular mainstream choices.