How to create Magento’s Custom API?

It is not in-depth tutorial but description on how I tackled creation of custom API for magento. There are still vast fields of unknown but at least this will let you start building your own API and let you learn, like me, on how to do it. If I will find out anything new about it or I will gain some theoretical knowledge then I will update this post with those revelations.
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Magento API

Like I have mentioned in the first post I am starting with magento, with the shop itself I am battling for some time now, but recently I desired to do something more:) (set-up store is just not enough). Because I am Flash fan I wanted to build an application that will replicate some or all of the functionality that are accessible through browser.
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I have just started adventure of the blogging world, I thought that it will be a good point to finally do it, as also I am starting with Magento API and XML-RPC. This is a rather experiment so I am not committing to anything, but whenever I will find something interesting I will put it here.