Question

What is character interaction?

Answer 1

As in real life, it is just the ways in which the characters of a story interact with each other.

Explanation:

It's not a fancy term - but unlike real life, how it is developed in a story can be critical to the plot development and the reader's enjoyment.

Here's one way to develop them in your stories:
http://writeonsisters.com/writing-craft/character-development-the-interaction-chart/