When the token x is a single character long, this parses as the literal character char. Uppercase and lowercase letters are distinguished after #\; #\A and #\a denote different character objects. Any single character works after #\, even those that are normally special to read, such as left-parenthesis and right-parenthesis.
In the single character case, the x must be followed by a non-constituent character. After #\ is read, the reader backs up over the slash and then reads a token, treating the initial slash as a single escape character (whether it really is or not in the current readtable).
When the token x is more than one character long, the x must have the syntax of a symbol with no embedded package markers. In this case, the sharpsign backslash notation parses as the character whose name is (string-upcase x); see Section 13.1.7 (Character Names).
For information about how the Lisp printer prints character objects, see Section 126.96.36.199 (Printing Characters).