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SB - Bhagavata Purana, or Srimad Bhagavatam
BG - Bhagavad-gita
 - Sanskrit term
Before describing the process of creation itself we should understand why there is creation at all.
The living beings inhabiting the material world were placed in it because of their rejection of God's association in the spiritual world, which is their original and natural position. The material world which the living beings try to enjoy and control [bhoga] by different forms of activity [karma] can thus be compared to a reformatory institution. This can be understood from the all-pervading presence of suffering [duhkha] which is the result of bhoga. When a living being [jiva], after many lifetimes realizes how badly and against her will she suffers due to the karmic reactions she starts to search for a way how to become free from this suffering. Then, after realizing that material remedies do not help, she starts her spiritual search and practice. This at the end leads her back home, back to Godhead.
The material world consists of two types of energies - material energy (bahiranga-shakti, external energy) and marginal internal energy (tatastha-shakti, living beings). The third type of energy, internal absolute energy (antaranga-shakti), exists only in the spiritual world.
The internal energy is eternal, full of knowledge and bliss. It is transcendental and beyond all changes. The material energy is its exact opposite, it is mundane and always changing. Jiva has the independence to be either in the spiritual or in the material world, and is therefore called marginal energy.
Krishna is the shaktimana or the source and master of all energy. (BG 7.6) In the process of creation He simply diffuses His different energies, which are simultaneously one with and different from Him (acintya-bheda-abheda-tattva). (SB 2.9.27)
The material energies, ingredients of creation, come from Karanodakashayi Vishnu, or Maha Vishnu, who is an expansion of Krishna, the Supreme Personality of Godhead. (SB 1.3.28) From the pores of His skin He exhales many universes and then He expands as Garbhodakashayi Vishnu and enters into each and every universe. This is the first phase of creation [sarga].
After the appearance of Karanodakashayi Vishnu the sum total of material energy [mahat-tattva] and time [kala] are generated by Him. In course of time false ego [ahankara] appears and transforms into three qualities - goodness [sattva-guna], passion [rajo-guna] and ignorance [tamo-guna]. (SB 2.5.22-24)
The interaction of the modes of nature [gunas] is called secondary creation [visarga] and the ingredients originally manifested by Maha Vishnu are used in it. It is performed by Brahma, a demiurge of this world who is born of Garbhodakashayi Vishnu. (SB 2.10.3)
The material building blocks of this world are eight material elements - solid [bhumi], liquid [apa], radiating [anala], gaseous [vayu], ethereal [kha], mind [manas], intelligence [buddhi] and false ego [ahankara]. (BG 7.4)
What follows is a progressive manifestation of material elements and objects, beginning with the most subtle ones, together with their controlling agents, demigods. (SB 2.10.15-30)
Brahma manifests from his body great sages [rshis] who then create different superhumans, humans, animals and plants in a cosmic hierarchy. In this creation of 8,400,000 life forms Brahma follows the master plan imparted to him in the form of a transcendental sound vibration [pranava omkara, om] by the Lord. This sound is the source and basis of all knowledge [veda]. It is transmitted orally in successions or lineages [parampara] and later it is given a written, scriptural form (Vedas and related scriptures).
Creation and Annihilation of the Universe
Vedic Conception of Sound in Four Features