Character Self-Awareness

As I've mentioned before, we're all unreliable narrators. But through trial and error, I also believe everyone develops some degree of self-awareness. We know our flaws and strengths, and try to improve them or play to them.
When you create a character, you get to determine their degree of self-awareness. Perhaps this person is acutely aware of their flaws and strengths, or is utterly oblivious, or has latched onto an erroneous self-perception. Any way you approach this, you have potential for intriguing character development.

By bringing us into the character's thoughts, the author can show the dichotomy between the character's self-image and their interactions with the world. It's also a major part of how the reader builds up their perception of the character-- we cringe when we see a well-intentioned character mess up because of their own unacknowledged obliviousness to other people's feelings, or cheer when another character gains enough perspective to make a difficult self-improving choice.