Default Mysql character set

Moodle requires UTF8 in order to provide better multilingual support and has done since Moodle 1.8. However the UTF8 check during install and upgrade was only been implemented in Moodle 2.0 and you may find you are unable to upgrade because your database was not set up originally as utf8 when you first installed Mysql or because you have been running Moodle since before 1.8 and haven't previously converted your database. It is perhaps worth noting that Mysql is nothing to do specifically with Moodle. It is a database engine that is very widely used in open source projects and it contains details of all the stuff in your Moodle such as usernames etc and pointers to all the files that have been uploaded to it.
You need to do two things. 1) Change your mysql to have utf8 as its character set and 2) Change your database to utf8.
The descriptions elsewhere in this section cover making the utf8 database versions using mysqldump.
To make mysql default to utf8 you can edit /etc/my.cnf as follows.

(This was good for ubuntu server lucid 10.04 2.6.32-24-server Jan 2011)
In the client section of my.cnf
[client] ... .... ...
default-character-set=utf8 ....

and further down in my.cnf
[mysqld] ... ...
default-character-set=utf8
default-collation=utf8_unicode_ci
character-set-server=utf8
collation-server=utf8_unicode_ci
... ...
Having made your default character set utf, a mysqldump restore of your database with the --skip-character-set parameter, will restore the database with your new default character set of utf8.
utf8_unicode and utf8_general are not the same but similar. The difference is described in the unicode documentation page. (Link below)
Converting an empty database