Character creation is always a huge part of any RPG, and Oblivion is no exception. A lot of the game is amorphous, very few things are locked down to a stereotype.
Since leveling levels every monster with you then getting the most attributes out of every level. You can gain attribute bonuses by training corresponding skills. More details on the Attributes Page.
Bretons and High Elves are the champions of magic. Redguards, Nords and Orcs are the combat specialists. Khajiits and Wood Elves are natural thieves. Argonians can swim any distance underwater (useful for treasure hunting). Imperials are the most balanced race, as other than a slight combat leaning they're pretty much mediocre at everything. More details on the Races Page.
Emperor Septim will ask you near the end of the tutortial which sign you were born under. This is largely insignificant, but you can grab a bonus to attributes like Strength and Endurance.
Oblivion has 21 pre-defined template classes. You could go with any one of those, but many of them have a weakness or repeated skill you don't want. Because of this, Bethesda gave you the option of creating your own custom class. You can pick your own attribute bonuses, main skills, and name. More details on the Class Page.
The most influential things you'll actually noticed in Oblivion are skills. There are 17 skills all on a scale of 1 to 100. Every 25 points a drastic increase in abilities occurs. Skills are mostly gained by using it over and over. Skills come in minor and major and major skills are the cause of leveling up. More details on the Combat, Magic, and Stealth skills.
But most importantly, just remember that you can play this game any way you want! If you want an Orc thief, you go right ahead! If you want an Argonian brute, try it out! Even if it takes a little longer to upgrade your characters skills, it may be fun to try the unorthodox and odd class/race combos, and when you beat the game you will have done it your way!