If you want to develop your own character instead of downloading one:
Copy the extracted folder into the chars directory of your M.U.G.E.N installation.
Once you have downloaded a character file (usually in a ZIP or RAR format), follow these steps to add it to your game: Unzip the character's folder.
The most popular hubs for finding and downloading free M.U.G.E.N characters include:
You can find free M.U.G.E.N characters, often called "avatars," on several community-driven platforms, primarily the Mugen Archive . M.U.G.E.N is a free 2D fighting game engine that allows you to download and add thousands of custom-made fighters from various franchises.
The original developer's site, which provides the engine and base documentation.