EXPERT RESPONSE
UTF-8 is ideal for most applications where any special characters must be supported. Set utf8_general_ci for both the connection and the field collations, unless you have a compelling reason to do otherwise.
MySQL will allow a user to choose the character set and collation down to the field level. You could have UTF-8 and latin fields in the same table if you wanted.
Since UTF-8 is a variable length character set, your index will only be larger than a similar Latin index if there are multi-byte characters used. If only single byte characters are stored in the table, than the index will be the same size.
The MySQL manual contains lots of information on the different character sets and collations available and how to convert between them.
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