Greek χαρακτήρ is a nomen agentis of the verb χαράσσω (charassō) with a meaning "to sharpen, to whet", and also "to make cake", from a PIE root *g'ʰer- "cut" also continued in Irish gearr and English gash, which is perhaps an early loan ultimately from the same Greek root.
A χαρακτήρ is thus an "engraver", originally in the sense of a craftsman, but then also used for a tool used for engraving, and for a stamp for minting coins. From the stamp, the meaning was extended to the stamp impression, Plato using the noun in the sense of "engraved mark". In Plutarch, the word could refer to a figure or letter, Lucian uses it of hieroglyphs as opposed to Greek grammata (Herm. 44)
Metaphorically, it could refer to a distinctive mark, Herodotus (1.57) using it of a particular dialect, or (1.116) of a characteristic mark of an individual. The collective noun χαρακτηριστικά "characteristics" appears later, in Dionysius Halicarnassensis.
Via Latin charactēr, Old French caracter, the word passed into Middle English as caracter in the 14th century. Wycliffe (1382) has To haue a caracter [...] in her forhedis (Revelation 13:16) for the mark of the beast (translating χάραγμα "imprinted or branded mark").
The word was used in the sense of letter or grapheme by William Caxton, referring to the Phoenician alphabet, The Fenyces were the fyrst inuentours of caracteris dyfferencing that one fro that other, of whiche were fourmed lettres for to write (Eneydos 6.25). As in Greek, the word was used especially for foreign or mysterious graphemes (such as Chinese, Syriac, or Runic ones) as opposed to the familiar letters; in particular of shorthand (in David Copperfield (chapter 38) sarcastically of shorthand, "a procession of new horrors, called arbitrary characters; the most despotic characters I have ever known"), and since 1949 in computing (see character (computing).
Esotericism and magic
The word in Renaissance magic came to refer to any astrological, cabbalistic or magical sign or symbol. Related is the Sacramental character of Catholic doctrine. Famously, John Dee designed his Monas Hieroglyphica in 1564.
In the 19th century, this sense of the word appears mainly in Romantic poetry, such as Sir Walter Scott's Lay of the last minstrel (1805), where "A hallow'd taper shed a glimmering light / On mystic implements of magic might; On cross, and character, and talisman," (6.17).
Semiotics and epistemology
From the esoteric or mystical meanings, Early Modern learned authors abstracted a notion of Character as a code or hierarchical system that embodied all knowledge or all of reality, or a written representation of a philosophical language that would recover the "true names" lost in the confusion of tongues.
This idea had currency as a kind of epistemological philosophers' stone for about a century, from the mid 17th century, with Francis Lodwick (1642) and John Wilkins's Essay towards a Real Character, and a Philosophical Language (1668), to the later 18th century and the Encyclopédie where in a long entry under the heading Charactère, D'Alembert critically reviewed such projects of the past century.