What does research and development for a console actually consist of?

[Andrespetmonkey]

Is it a bunch of engineers and dudes in suits discussing what goes into the next console? Is it testing different components and versions of components and different ombinations of components? computer models? physical models?

I say it a lot, I hear it a lot, but really I'm not so sure I know what it is. I assume the above... is that basically the extent of it? Mostly I'm interested in where the costs associated with it come from, and why they can be so astronomical. 

Thanks in advance.