How does/can proper character development add to the suspense felt in the reader?
It can make the reader relate to the characters more. This will make any suspense feel more personal and thus intense. If character development is actually good it may also increase immersion, which also makes suspense feel more intense. And if characters change, develop, in response to events it will make the events seem more significant.
Note that this doesn't really add to the suspense, it just makes reader feel any suspense you create differently. So it can't substitute for actually creating suspense and in many genres it doesn't really help to have too much character development. In many thrillers you want the reader to be surprised, awed, or excited, not really immersed or personally attached.
So don't add character development to a suspense story just because, think about how it adds to the specific story. I guess the same goes for all stories, really.
Really immersing the reader into the character's backstory and emotions can help make the reader feel as the character does. It's important to keep changing a character as the story progresses too, that helps keep things interesting.
A good way to build suspense on a character is to put a veil of mystery over everything they think they know, however, lift the veil slowly. It is a good way to keep the reader interested in the story. Furthermore, when writing events which create events you need to write as if you were writing a diary of that event from the perspective of your character. For example, if your character is scared of spiders you would really exaggerate events to do with spiders.
"The spider crept up to me like it was a sly fox. It jumped at me with unreal vigor, venom spewing out of it's mouth."
A character's personality and background can create suspense for the reader, if the reader knows them well and expects them to react a certain way to certain events. Plot twists, including suspenseful ones, interact with the characters' flaws and foibles. If you watched Back to the Future, imagine yourself as a viewer hearing someone say the word 'chicken', and knowing that Marty McFly is about to do something incredibly foolish in response.
Characterization can be the engine behind the plot, in that it drives characters to put themselves in dangerous situations, to create problems for themselves or for others, and it determines the way they approach problem-solving. A dangerous scene is scarier for the reader, if the reader knows that this danger is specifically of a kind that the protagonist has a bad track record with. Indiana Jones and 'Why did it have to be snakes?' is an operative example here.
There are lots of ways to make character development impact plot development. It's just a matter of identifying which parts of the characters are most important to the plot.