A character is an actor or player in the plot. Usually, the characters are people, but in some stories, they can be animals (The Cat in the Hat, Black Beauty) or even something that would normally be an inanimate object (Thomas the Tank Engine).
Characters change the situation, moving the plot along. And, the characters are sometimes changed by the situation -- they learn things or change perspective.
In an allegory, characters are frequently named based on what they represent. In Pilgrim's Progress, a character named Christian, represents Christians and Christian values.