Domain development is often confused with the ‘stencil’ method of putting the same content on several domains and then selling the domains as ‘businesses’. True domain development consists of building a website with unique content (or functional tools) and receiving a residual income from the site itself as opposed to the domain name.
The reason some domainers develop their domains is because having a well-known domain is like having a good foundation for a business. Since very valuable domains already receive a certain amount of type-in traffic, developing such a domain into something useful can only increase the traffic, which will make the domain name that much more valuable.
How can you make money from a developed site? You could set up an online store and sell things. You could set up a membership site with a forum and sell advertising directly to advertisers. You could set up a news/information site and give readers some kind of bonus incentive for paid memberships (or, again, rely on money from advertisers). And, of course, you could develop a content/information site and earn money from PPC and affiliate ads.
A simple way to figure out how to develop a money making site is to search for successful sites related to your domain name. What are they doing to develop their domain? Would it be easy enough for you to do something similar?
Developing a site isn’t easy, even if you know how to design a website. The real difficulty is in finding an idea that hasn’t already been tried, or in making an idea that has been tried work better. Of course, if your domain receives a lot of type-in traffic, the sheer number of users who happen across your site could make even a worn out idea profitable for you. Website owners usually spend more time promoting than developing their sites. Since a domain with lots of type-in traffic doesn’t need as much promotion, it will be that much easier to make money from the domain name.
But even without promotion, a developed site is basically a business and must be treated as such. That can mean anything from updating your store details, filling orders and answering phone calls from customers, or even moderating user created content.
If you find that developing domains becomes profitable, you could easily trade the time you spend ‘domaining’ for time spent developing and running a business. Not that this is a bad thing, but it’s different than domaining, and shouldn’t be confused with domain development. The purpose of developing a domain (from the viewpoint of a domainer) is to increase the revenue made from it while holding the name (spending as little time as possible on it), and to increase the overall value of the domain name. The purpose is generally not to start another business.