A character was an individual, animal, or thing/object that was being presented as a person, in a narrative.
Holodecks and holosuites were examples of technology that were capable of depicting such narratives and the characters within them in an interactive format. In general, such characters could interact only within the defined parameters of the program. Due, however, to the advanced nature of the technology creating them, it was at times possible for such characters to gain sentience, thus no longer being a mere character. One such case was that of James Moriarty, who was created after Geordi La Forge asked the main computer of the USS Enterprise-D to create an opponent that was capable of defeating Data, an android. The computer calculated this as the only way to fulfill the request, as only a being with sentience would be capable of defeating Data. (TNG: "Elementary, Dear Data")
According to the Dictates of Poetics by T'Hain of Vulcan, a character's actions must flow inexorably from his or her established traits. In 2373, Lieutenant Tuvok cited this when Lieutenant Tom Paris wished to modify the holographic program Insurrection Alpha to have Captain Kathryn Janeway execute those involved in a Maquis mutiny against her command. Tuvok felt that this was an entirely implausible plot twist given what he knew of Janeway's character. (VOY: "Worst Case Scenario")
In 3074, a copy of The Doctor left behind on the Kyrian and Vaskan homeworld acknowledged that their simulation of USS Voyager's encounter with them was at least founded on reality, if not true to it, saying, "Well, the stage is certainly set, but I'll have to rewrite the characters and revise the plot a little." (VOY: "Living Witness")