The tool is simple-- freehand, flood fill, and eraser, but it works well, and there is something incredibly satisfying about drawing a character and seeing it animate on the top screen as you're drawing it. It'll be a lot more satisfying to do the drawing with an actual stylus. So far, we feel justified in our anticipation of Drawn.
When you've created a character you're satisfied with (like our completely original protagonist above), you can enter it into a contest, the winner of which gets included in the game! Oh, and also you get a bunch of stuff.