When you say "the characteristic length of the system is defined as h,m, and v to some powers that dimensionally result in a length," why does that length actually mean something and why isn't it just some random, unrelated length?
In general, no, the particular quantity you get by manipulating the variables to get a length doesn't mean anything. But what this quantity does for you is give you a sense of scale for what you're dealing with.
To give you a different example, think about driving in a car. On the road, there is a speed limit, giving you the maximum speed you are legally allowed to drive. When driving, you also usually have a destination in mind. The distance to your destination is another meaningful quantity for the problem. If you want to know how long it will take to drive there, you need to take a lot of different things into account: do you drive above or below the speed limit, how many red lights will you encounter, how much traffic is there. But if you just divide the driving distance by the speed limit, you have a really quick idea of the kinds of time scales you're dealing with. If the speed limit is 70 mph and the destination is 200 miles away, there is a characteristic time of about 3 hours. That doesn't mean that your drive will be 3 hours, but it definitely won't be 10 minutes or 1 year.
Why does this work in general?
It works in general because most systems only have one mass scale, one length scale, one velocity scale, etc. With a harmonic oscillator, there is only one object moving, it's maximum distance doesn't vastly change over time, it only has one mass, etc. There are certainly systems where that is not the case. One example is light diffracting through a grating. The grating must be on a similar length scale as the wavelength of the light (measured in 100s of nanometers), but once it passes the diffraction grating, in order to measure the direction of the light, it has to travel over meters scale distances. But even then, the meters scale can be abstracted away by instead talking about the angle of the diffraction instead of the distance.
Also, how do you know what a characteristic quantity will represent in the system before doing any other calculations?
A characteristic quantity only represents a scale typical of the problem. All other meaningful quantities of the same dimensionality will in some way be related to that characteristic scale. This will either be by some numerical factor, or because the meaningful quantities will be calculated in a similar way. In the quantum harmonic oscillator example, the characteristic energy is $\hbar \omega$ while the ground state energy is $\frac{1}{2}\hbar\omega$, a numerical factor of $1/2$. In the quantum harmonic oscillator case, the characteristic energy is physically meaningful on in its own way because it is the energy difference between adjacent energy levels. In other situations, the characteristic length could be entirely meaningless on its own.