I want to apply to grad school this fall for next year. Under grad is engineering so I'd be doing something similar. Basically how does one do research? As of now I have no clue where to even begin. Undergrad doesn't prepare you for that so I am sort of lost as to how someone comes up with a thesis and knows what research to do to defend it. I understand you have an advisor to help you but I just feel like I am going to fail unless I literally have my hand held throughout the entire process. Also I have no clue what specific thing I would want to research. Does this mean I shouldnt get a phd? I've never been exposed to research or anything like that so how can I possibly know what I want to research?

In the UK anyway it's normal to do a Masters first, either standalone or as an integrated part of a 1+3 funded Masters+PhD arrangement. The Masters degree teaches you how to be a researcher. Or at least how to start being a researcher. Doing a PhD teaches you more about this, so you keep learning as you go along.

As you go through the process you take more control of your project and become more of an independent researcher. It's an ongoing learning process. You don't need to know everything going in.

Does this help?

As BilboBaggibs suggests a Masters is a good route into a PhD as that will teach you some research skills.

As for wondering how you get to know what you want to research, you have to consider a topic that you think will interest you enough that you could continue working on it every single day for 3/4 years or however long you're doing your phd for. Once you've decided, you started looking at research in the area - either start with Google or Googke scholar to see what's out there and then you can move on to searching other databases such as Web of Science or other specialist databases for your particular field. Once you starting reading around the subject you will start to spot themes emerging from your reading. You will also hopefully start asking yourself whether those themes have been adequately explored, what the studies did well, what they could have done better, what things you would have done to explore that data further. Then at some point when you've done enough reading you should be able to spot the questions that are begging to be answered that either aren't in the literature or have produced ambiguous findings (that might be clarified with better methods/analysis) or that could do a with a new reworking thanks to advances in technology or methods. It very much depends on your field and what you're interested in.

However these skills take time to develop you're not expected to know it all. Reading 'critically' is one of the hardest things to learn but once you've got it it comes like a second nature.

Don't give up on thoughts of doing a phd because you think it's too daunting. Give yourself a chance to get to know how to navigate research then make the decision whether you want to proceed or not. Those research skills will benefit you regardless of whether you go into academia or not.

Many unis run courses on research design and how to do research as part of the PhD enrolment programme so they don't expect you to know it all before you get there.

Best of luck with your studies!