Is the computer-related term "character" understood by the general population?

The following kind message is common in programming:

Your password must be at least six characters long and include at least one letter and one number

Would an average person understand what that message means?

Is it reasonable to assume they'd understand the distinction between a character and a letter?

Is there a better, jargon-free, way to phrase this message that does not sound torturous?

I think it is pretty common to understand character as as printing press character when for instance you read about characters in a broad sense of all the types used in printing.

My edition of the OED has this definition as number I.3a, that is pretty much at the top of the list:

I.3.a esp. A graphic symbol standing for a sound, syllable, or notion, used in writing or in printing; one of the simple elements of a written language; e.g. a letter of the alphabet.

And indeed everyone would talk about Chinese characters which aren't really letters.

As you mention yourself, this is common. This is the message that we see across websites when creating a password. I think the average person understands this without problems. If you are unsure, make the word "characters" into a link-type word that you can hover over to get an explanation of what is implied.