character set vs. collation

Taken from the docs:

CHARACTER SETs
--------------

"CHARACTER SET and CODEPAGE are used interchangeably to specify the
encoding used by the character string type."

Does this relate to the storing of char data?

For example german chars ä,ö,ü,ß?


COLLATIONs
----------

"COLLATE and LOCALE are used interchangeably to specify an explicit
collation for the character string and national character string types. "

Does this relate to retrieving of char data, respecitvely
when comparing chars, e.g. WHERE charcolumn = <string-literal>?


Do i have to define both CHARACTER SETs and COLLATIONs when creating
a table?


Thank you,

Thomas.