The answer can be short: "Everywhere!" or tediously detailed. I can bore the average human to the brink of coma by chundering on about how I watch and listen and analyse even the most insignificant event. Writers are like crime scene forensic investigators; it's not enough for us to know what happened, we need to know in what order, when, and, crucially, why?
There's no way of knowing if I come up with any home truths. There's no way of checking; I can't collar the hearty head of the PTA to ask Are you hitting the sherry at 11am cos of your husband's affairs? She might hit me with her clipboard.
Besides, the truth is kind of immaterial. What this snoopery does is stimulate my imagination, kick-starting the ideas factory in my head. What if, I ask. What if this happened and then that happened and then she said this and he shouted that ... I follow the trail of imaginary breadcrumbs until the basis for a novel firms up. That's an exciting moment, when you realise that something's growing in front of you, and will soon be solid enough to touch. (Insert your own rude jokes here, if you wish...)
Then comes the nail biting bit, where you try to pin down the idea, to work it into a viable story that you can sustain over a hundred and twenty thousand words. It might melt, like fog, leaving you empty handed. Or it might turn in the light, flashing sparks as it changes and mutates. You test it - is it feasible? Is it interesting? Is there scope for side shoots, for sub-plots? And, finally and most importantly, do you bloody love it. Because this story and these characters are going to be your constant companions for the next few months. You'll go through the motions of 'normal life' but while you're flinging fish fingers at your children and nodding to your partner's anecdotes and 'mmm'ing sympathetically to your friends' tales of romantic woe, you'll be thinking about the other world, the one you escape to.
The one where you are GOD.