Were the choice of characters in compound words based on their intrinsic meaning, or are their meaning derived from their use in compound words?
Most compound words in Chinese appeared later on in the history of the language. In ancient Chinese, just about every single character had it's own meaning. Later on when the language started becoming more modern, many words became compound words to simplify the language by making it easier to differentiate homonyms and to make the language sound more fluid when spoken. I've had a teacher explain that Chinese people feel that characters sound more natural in pairs.

I don't know the exact history in how the compound words were created, but having studied some ancient Chinese, I can say that the individual characters came first :) .