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Characters are a useful (but entirely optional) way to manage your cast. Each collection has it's own unique set of characters, which you can manage from the Characters administrative page.
Storylines are nearly identical to WordPress tags: each has a title, a URL-friendly slug, and may include a description that summarizes the storyline.
The only major difference between WordPress tags and Webcomic characters is the option to add an avatar for the character. An avatar is a unique image that can be displayed on your site (on a cast page, for example). Small previews of avatars are displayed in the table on the Characters administrative page. Clicking an avatar preview will take you to the Edit Media administrative page for that image.