How Characters Improve
"Good judgment comes from experience,
and a lot of that comes from bad judgment."
— Will Rogers
We've mentioned Karma a lot already. Hopefully the idea is intuitive enough that it hasn't been confusing, but let's pin it down.
Karma Is Experience
Characters grow through Karma - the currency of experience and epic moments. You'll accumulate Karma during play and spend it to permanently improve your abilities.
Earning Karma
Note that the GM can earmark any given Karma for Level (or a specific Role or Maneuver if from an Extreme roll) to keep the party power levels from diverging too much; don't overuse it.
Attendance
Generally, each player should get one point of Karma every session just for showing up. It's ok to give it at the beginning of the session against the possibility that they will need it for an emergency, though they can't spend it on advancement till they get some downtime, usually at the end of the session.
Hooks
Characters earn a Karma the first time a Hook is triggered in a session. This should happen at least once every session. If the group wants to allow characters to generate more Karma faster, they may do this a number of times per session equal to the current rating of the Hook, so a Hook 2 can be triggered twice for Karma before it starts yielding Luck Tokens instead.
If at the end of a session the GM realizes they haven't triggered any Hooks for a character, give them a Karma as an apology.
Extreme Rolls
If you are using Extreme rolls in your game, you might want to allow characters to learn from their more dramatic successes and mistakes. Any time a character rolls an Extreme result, whether success or failure, mark the specific skill. At the end of that session, credit 1 Karma toward the Role or Maneuver if one was used; or base Level if no Role was involved. This Karma is considered spent toward advancing that score, whichever it is. If the roll involved synergy from multiple Roles and/or Maneuvers, let the player choose which gets the Karma.
Just Good Fun
The GM should feel free to hand out a Karma just like Luck Tokens for any truly fun thing the character (or possibly even the player!) does during the game. A heroic sacrifice? Awesome tactics that carry the day? A brilliant joke that leaves everyone laughing? Great role-play that wasn't related to a Hook? Anything the group agrees is worth it should earn an extra Karma, as long as they aren't getting "too many". If they are spending their Karma to benefit other members of the party, relax that rule and make sure they are rewarded for that too.