I have been working to design an rpg and walked right into the deep end. I haven't even gotten to the mechanics level. All I have is a list of races and a couple of organizations.

I am trying to design this world organically. I want the actions of the peoples of the world to be affected by the environment(cultural, political, natural). I want the political interactions to be realistic based on the cultures of the various groups. I plan to build a full history. I know it's a huge task. I'm willing to take it on(I have help). This is something I am very serious about. I have a myriad of questions but they all depend on one thing first:

How do I build an organic, realistic world  when everything requires 3 other things to be brought up simultaneously(which comes first the chicken or the egg)? Are there things I really do need first or are there any tips to get a handle on the big picture? I've looked at a few websites but the information tends to be somewhat vague or geared towards other styles(online gaming or novel writing).

My work on Nevercast is very similar to what you're attempting to accomplish.  I can tell you from direct experience in ground-up setting design that this is a very arduous and soul-crushing process.  It requires a significant amount of research in - everything - and late night sessions of crumpling up ideas and tossing them in the trash.

However, during my endeavors I figured out things which I believe may help you in your task.

The problem with this design model is that events are inscrutably intertwined; you change one thing, and then you have to change everything.  You may try to mitigate this difficulty by designing events in the following order: Geography > primitive organization/culture > religious organization > politics > social organization > contemporary culture. 

Geography will determine where early cultures coalesce; the societies in the most favorable regions most likely developing the fastest into states as they become trading hubs.  Then these societies will slaughter each other for a few centuries - favorable geography factoring greatly into military success as well - until relatively stable empires form.

Then look at how religion affects the established empires.  Religion is such a compelling organizing force that it radically affects the direction in which societies and those around them develop.  From an observational standpoint, it seems that the established cultures with the most organized religions are the most powerful: the Aztecs, Romans, Persians, early Egyptians, and then later on Spain and England (a country that was boosted up centuries earlier by the Crusades, which were religiously organized).  Political and military movement will revolve heavily around these societies.

Efficiency of politics will determine how society will organize itself.  Inefficiency will cause infighting and rapid reform, and if infrastructure can support such an ordeal, they’ll come out richer and more powerful.  For the most part, however, social organization tends to progress as tribal communism > slave state > aristocracy/feudalism > capitalism > socialism/other.

At this point things become muddy as states become increasingly more complex; no one force will definitively determine the direction of where anything will go.  I’m still working on these elements myself, but I hope this post gives you some clarity and perspective.

Thanks, that is very helpful. I'll work it into my current outline.

Just to provide some more detail on the setting, the idea is all the races are anthropomorphic animals and they are organized into loose factions, with each performing some basic role in society. I actually am trying to give the setting a strong element of intrigue and spy action. I love spy/heist movies and one thing I feel that ends up missing from a lot of games and especially turn based games is a sense of "there's something right behind me and I need to get moving because it could find me at any minute(think Bourne Identity)." So it really is important that there's a lot of history and a lot of groups and groups within groups in order to have plenty of people to make angry the first time you walk into the wrong tavern in the wrong part of town(for example).

JR,
  This task can be made a lot easier if you bare two things in mind:
1) Find the theme of your game and distinguish the various cultures, nations, etc. by how they approach that theme. The theme doesn't have to be specific or intense. It can be deep like what does it take to have peace on this world or light like which nation has the most powerful artifact.
2) Focus on the parts you love and feel free to hand wave the parts that are not as fun for you. The reality is, there will be parts you don't get exactly right. And the real world is wilder than the tolerances of any fiction (see http://matadortrips.com/photo-essay-the-most-alien-landscapes-on-earth ).

  Either way, good luck with your design.