'character-based' is a compound formed from English 'character' + past-participial adjective-forming 'based' (from 'base'), meaning 'having its basis in characters'.

'character' originates from Greek 'kharaktēr' via Latin 'character' and Old French, meaning 'engraved mark' or 'distinctive quality'; 'base' comes from Old French/Latin 'basis' meaning 'foundation', and the compound 'character-based' is a modern English formation (20th century) especially common in technical contexts (e.g., computing).

Initially the elements meant 'distinctive mark' ('character') and 'foundation' ('base'); together as a compound the phrase came to mean 'having its foundation in characters' and later expanded metaphorically to mean 'focused on characters' in narrative contexts.