Lots of people seem to be saying "pencil and paper", "pencil and notebook", or "word processor", as a response to this question. While it may be a valid response, or even a good answer to a question about the most commonly used design tool, I don't think I could really call any of these my "favourite".
I think my favourite design tool is the ad-lib. When I say this, I mean modifying a situation on the fly, getting players to do something on the edge of their comfort zone and using rulings that twist the existing rules to fit a situation they haven't specifically been designed to handle. The process of archiving that situation and modifying the rules to accomodate things in future comes later... it's the moment of critical thought, reaction, and design by instinct that is my favorite moment, and it's subconscious design tools from studying numerous games and just grokking the situation with modifications that just feel right, where my favourite design occurs.