Yes, choices are allowed, and you can have multiple endings. But of course the words in the choices also count against the 1.000 words limit. So for example if you add two choices saying "Go out" and "Stay in", that would be 4 words to include in the 1.000 word limit.
Yes, one character means one sprite (smaller overlay over the background). It's mostly a person, but you can also have a monster, or alien, etc...
And thank you for joining the jam, I hope you'll have fun working on it - if you aren't on Discord already, you can join us there as well.