As Richard said, you cannot create fonts in Illustrator. I do use it (and photoshop) to help in making fonts in FontLab Studio.
With variations, the workflow is basically:
1) Draw individual letters of new font on paper.
2) Scan and clean up in Photoshop
3) Place letter image in Illustator and create outlines
4) Import outlines to new font template in FontLab Studio. Clean up, size as necessary
This can be short circuited, you can draw directly in Illustrator, Photoshop or FontLab, but I find this gives me the greatest control and, well, it's just comfortable for me to work this way.