A character set is a collection of symbols (letters, numbers, punctuation, and special characters) when used together, represent meaningful words in a language. Computers use an encoding scheme so members of a character set are stored with a numeric value (e.g. 0=A, 1=B, 2=C, 3=D). In addition, a collation determines the order (i.e alphabetic) to use when sorting the character set.
By default, WordPress uses the Unicode UTF-8 (utf8) character set for the WordPress MySQL database tables created during the installation process. Beginning with Version 2.2, the database character set (and collation) is defined in the wp-config.php file.