huh, I guess I'm really oldschool when it comes to this stuff. The only tools I need are a pencil a pad of paper and my notes.
As for how I construct a hombrew campaign setting, read on:
First, get or draw a map, on the regional scale, e.g. mountains in one area, deserts in another, forests, bogs, and savanah in others, etc. I like to just print satelite images of parts of the real world that resemble what I'm looking for.
Then mark the locations of towns and at least one city in the region, as well as making notes of the approximate locations of secret camps, dungeons, and other special, but not well known areas, without actually marking them on the map.
Next comes major players. Think up and devise a basic outline for a number, usually just a handful, of characters that are important to the area's political landscape, and pick a few powerful, but apolitic creatures/characters to sprinkle in the noted but unmarked areas, i.e. a dragon roosting in the nearby mountains, or a wizard holed up in a tower in the forest.
Once you have your movers and shakers, decide, in a very loose outline, how they would interact with one another over a period of several weeks, months, or years (depending on the scope of the campaign); absent the PC's influence.
Finally, lay out some plot-hooks to get your players moving toward helping, hindering or joining, one or more of these important people/creatures and their plans/organizations.
Now you have a campaign setting all layed out.
From week to week you further develop the outline for the plans and interactions of whichever characters the PC's bit the plot-hooks for and include changes in those plans based on the PC's interference.
Also advance the rest of the movers and shakers' plans and interactions in a much more general fashion along the outline you made for them. This way, if the players decide to just drop whatever plot they started along, you have at least a basic idea of where to lay new plot-hooks to get them involved in something else.
It's a fair amount of work, but it makes for an interesting and somewhat dynamic world for the players to interact with. At least, that's how I do it.
This only really runs into serious problems if the players decide, usually just to screw with me, to leave the region altogether. Then I have to cut the session short and use the next week to start over again. Bastards.