Character assassination is used to discredit a person (usually a public figure) to further the agenda of an opposing party. Often employed in modern politics, it is accomplished by the distortion of truths, and the dissemination of outright falsehoods.
Hitler's propaganda minister, Goebbels, believed that the bigger the lie, the more convincing. Machiavelli taught that the ends justify the means. This epitomises character assassination.
The particular methods employed in character assassination are varied - it's a skill, not a science. But for it to be successful, it is important to spread the material and repeat it. For example1, Al Gore's supposed invention of the Internet was both a distortion and an exaggeration. It is still popular because, in this case, the distortion is simpler and funnier than the truth, and therefore gains more mind-share.
"PR 101 is define your opponent before he tries to define himself"
Character assassination is clearly organized along those principles.
Today the most important method by far for disseminating allegations is of course the Media. Therefore, having the media (deliberately or unwittingly) participating in a campaign of misinformation is an essential element.
Maybe one of the most famous (attempted) victims of character assassination was Martin Luther King. As part of the "war" on the Civil Rights movement, The FBI, among others, made several attempts to disgrace him in the eyes of the nation. One such attempt involved leaking details of an alleged affair to the media.
Notable figures who were on the receiving end of similar treatment included Abraham Lincoln, and Franklin Roosevelt. A further example can be seen here.
1: Just an example. I'm not a Democrat. I'm not even American!