MySQL CHAR() Function and UTF8 Output?

You are confusing UTF-8 with Unicode.

0x00FC is the Unicode code point for ü:

mysql> select char(0x00FC using ucs2);
+----------------------+
| char(0x00FC using ucs2) |
+----------------------+
| ü                   | 
+----------------------+

In UTF-8 encoding, 0x00FC is represented by two bytes:

mysql> select char(0xC3BC using utf8);
+-------------------------+
| char(0xC3BC using utf8) |
+-------------------------+
| ü                      | 
+-------------------------+

UTF-8 is merely a way of encoding Unicode characters in binary form. It is meant to be space efficient, which is why ASCII characters only take a single byte, and iso-8859-1 characters such as ü only take two bytes. Some other characters take three or four bytes, but they are much less common.