You can download a sample, which illustrates how to implement this scenario in the Products module from the Sitefinity SDK from here.
This sample creates a custom Lookup field for the Products module, similar to the scenario described in this blog post.
When the user closes the dialog, a dummy product is generated in the code (it is not in the dialog user interface), and set as the value of the lookup field. Addinionally, there is an extension for the DetailFormView (this is the dialog used to create and edit items). This extension subscribes to an event that fires every time the lookup field changes its value. When this happens, the extension code rebinds the whole DetailFormView with the dummy product constructed from the dialog.
All relevant files are in the ProductCatalogSample project, under the path Web.UI.CustomLookupField.
The file representing the extension of the DetailFormView is called ProductsDetailExtension.js.
What you should then do is provide the UI in LookupFieldDialog, through which you will select your existing items. This depends on your particular case.
@Nidhi Your request is much more easily achievable, since you don't have to pre-populate all fields. All you need is to create a custom field control. Just follow the example in the blog post I mentioned above. You can of course use standalone controls instead of definitions, but you would have to implement all things that you use out of the box yourself (all UI, calling the manager methods, persistence in the DB). This would be much more cumbersome compared to definitions.
Let us know if you have any further questions.
All the best,
the Telerik team