char and varchar (Transact-SQL)
Are string data types of either fixed length or variable length.

char [ ( n ) ]
Fixed-length, non-Unicode string data. n defines the string length and must be a value from 1 through 8,000. The storage size is n bytes. The ISO synonym for char is character.

varchar [ ( n | max ) ]
Variable-length, non-Unicode string data. n defines the string length and can be a value from 1 through 8,000. max indicates that the maximum storage size is 2^31-1 bytes (2 GB). The storage size is the actual length of the data entered + 2 bytes. The ISO synonyms for varchar are char varying or character varying.

Remarks
When n is not specified in a data definition or variable declaration statement, the default length is 1. When n is not specified when using the CAST and CONVERT functions, the default length is 30.

Objects that use char or varchar are assigned the default collation of the database, unless a specific collation is assigned using the COLLATE clause. The collation controls the code page that is used to store the character data.

If you have sites that support multiple languages, consider using the Unicode nchar or nvarchar data types to minimize character conversion issues. If you use char or varchar, we recommend the following:

Use char when the sizes of the column data entries are consistent.

Use varchar when the sizes of the column data entries vary considerably.

Use varchar(max) when the sizes of the column data entries vary considerably, and the size might exceed 8,000 bytes.

If SET ANSI_PADDING is OFF when either CREATE TABLE or ALTER TABLE is executed, a char column that is defined as NULL is handled as varchar.

When the collation code page uses double-byte characters, the storage size is still n bytes. Depending on the character string, the storage size of n bytes can be less than n characters.


nchar and nvarchar (Transact-SQL)
Character data types that are either fixed-length, nchar, or variable-length, nvarchar, Unicode data and use the UNICODE UCS-2 character set.

nchar [ ( n ) ]
Fixed-length Unicode string data. n defines the string length and must be a value from 1 through 4,000. The storage size is two times n bytes. When the collation code page uses double-byte characters, the storage size is still n bytes. Depending on the string, the storage size of n bytes can be less than the value specified for n. The ISO synonyms for nchar are national char and national character..

nvarchar [ ( n | max ) ]
Variable-length Unicode string data. n defines the string length and can be a value from 1 through 4,000. max indicates that the maximum storage size is 2^31-1 bytes (2 GB). The storage size, in bytes, is two times the actual length of data entered + 2 bytes. The ISO synonyms for nvarchar are national char varying and national character varying.

Remarks
When n is not specified in a data definition or variable declaration statement, the default length is 1. When n is not specified with the CAST function, the default length is 30.

Use nchar when the sizes of the column data entries are probably going to be similar.

Use nvarchar when the sizes of the column data entries are probably going to vary considerably.

sysname is a system-supplied user-defined data type that is functionally equivalent to nvarchar(128), except that it is not nullable. sysname is used to reference database object names.

Objects that use nchar or nvarchar are assigned the default collation of the database unless a specific collation is assigned using the COLLATE clause.

SET ANSI_PADDING is always ON for nchar and nvarchar. SET ANSI_PADDING OFF does not apply to the nchar or nvarchar data types.


Source : http://msdn.microsoft.com/en-us/library/ms176089