I have about 20 chapters in a novel that I began in MS Word 2003; the novel contains about twelve characters (persons). What is the best way to setup the characters on “note cards” so that I can develop their attributes and other characteristics?

The best way is the way that works for you.

The way that works for me is to have a top level folder for characters, then each character gets a folder below that. (Yes, folder, not document.)

Then inside each character folder is a document called notes, where I write random stuff about the character as I think of it, another document called snippings, where I use the “append selection to document” feature to grab snippets of the main text relating to that character for those random throwaway comments I make while writing that turn out meaningful later in the story, and other bits of characterization, speech patterns, and how other characters see them. Beyond those two documents that all the characters have, I throw whatever else is relevant to that character into their folder. Photos if I have them, their master plan if they are a character with a plan, and so on.

What is the difference between document and folder, and how do I set up new ones?

I would strongly suggest going through the Scrivener tutorial (in the help menu) as it explains this and much more.

From the FAQ:

The great thing about janra’s method is that you can then view the character as a flock of notecards, or as an outline.

You can also trawl the Web to find a picture of someone who looks like your character and add that inside the folder - so when you view those notecards, you can also see a visual of the character.