When it comes to selecting colours I always get lost in the big colour wheel and find myself wondering if the colour I have chosen would be one that accurately represents something that would be found in a retro style game?

I guess you could use something like these:
- http://pixeljoint.com/forum/forum_posts.asp?TID=12795
- http://androidarts.com/palette/16pal.htm

But you also need to learn about colour models, which are ways to describe colours. This way you can categorise colours, make palettes out of them.
This helps you recognise when a colour feels out of place in a palette (a highly saturated colour in the middle of an unsaturated palette, for example).
- http://www.artofscholes.com/colorprimer
- http://www.huevaluechroma.com/012.php
- http://vanseodesign.com/web-design/color-meaning/

I also find myself wondering if I am using too many colours or not enough colours to achieve the effect and find myself wondering how much darker or lighter I should make intermediate colours when it comes to shading.

In what context are characters in? The lighting in a sunny beach is going to be different from the lighting in a dark room with a candle.
The nature of the light source also tells how sharp or smooth the shading should be, how much bounced light there is in the scene and how strong the shadows are.
Instead of painting a character located around a void of whiteness, think of the place they're in and the light sources around them. This is a creative decision, it's up to you how you want the sprite to look.

Once you know the light sources you can use shading to tell the viewer what's the form of the subject, following the simple rule that the regions of a surface that point towards the light source are brighter than the regions that face away from that light source.
Also rely on your eye, you can usually tell how natural the shading should look ("does this look like the soft skin I'm going for?").
If you can spot the transition between colours in what should've been a smooth shading then you should make the change in values smoother. Use multiple views to look at the sprite at different zoom levels. Look at other sprites if you're not confident enough.

This other article has some nice pointers:
http://androidarts.com/pixtut/pixelart.htm

- - - - - - - - -
I like your characters.
If I had to work on them I would try to make the lighting more obvious (using shading), and make some use of anti-aliasing so they look more polished.

Wow that is a lot to take in, thanks for the pointers you have been a big help.