I usually have a rough idea of how I want my story to be told. But I don't plan too much as I like things to be game-driven. So I might create a simple backstory and then let the game lead.
It honestly really depends. If I'm going for some story that's super outrageous & crazy, sometimes it requires some super heavy lifting on my part to setup. For example, I'm a huge occult Simmer. I have one Save dedicated to my occults and the founders of my vampire legacy are the same Sims I've been playing since Vampire GP came out. But now with mermaids, spellcasters, etc. my occult Save has grown and has become a rotational style of play. & I usually am running multiple stories that are interconnected with several Sims/households. I'm currently playing an extension to a storyline that I had originally ended. Part of original story: Jealous half-sister wants her sisters life and plots and schemes to get it and bring drama on her sister, by framing her for murder (long story). Sister finds out, is able to stop her in time, makes potion to turn her human...sister gets arrested, goes to jail. Current: I decided to bring the sister back - so fast forward like 20 years later, and the sister is out of jail, she's had plastic surgery and has reinvented herself...changed her name, her looks etc. & she has befriended her sister....except of course her sister doesn't know she's her sister. & she's planning the ultimate revenge. So this Save, has a little bit of everything in it....quests for power, revenge, love, family play, etc.
So long answer to your question (sorry)....it's a mixture of both for me....of having an idea of where I want to go in a story and doing some setup to tell the story the way i want....& also letting the game drive as well with unexpected events/challenges that maybe I didn't plan for.