Atlassian recommends to use UTF-8 encoding whenever is possible. This article refers to particularities for different JIRA supported databases.
Encoding x collation
A character encoding system consists of a code that pairs each character from a given repertoire with something else, such as a sequence of natural numbers, octets or electrical pulses, in order to facilitate the transmission of data (generally numbers and/or text) through telecommunication networks or storage of text in computers.
Collation is the assembly of written information into a standard order. One common type of collation is called alphabetisation, though collation is not limited to ordering letters of the alphabet. Collating lists of words or names into alphabetical order is the basis of most office filing systems, library catalogs and reference books.
Source: www.wikipedia.org/
Recommendations:
1. Connecting JIRA to SQL Server 2005 / SQL Server 2008
SQL Server support Unicode since SQL Server 7.0 by providing nchar/nvarchar/ntext data type. But SQL Server doesn't support UTF-8 encoding for Unicode data, it supports the UTF-16 encoding. UTF-8 is most common on the web. UTF-16 is used by Java and Windows.
JIRA uses the NCHAR and NVARCHAR data types for all text column on MSSQL, and both these data types store Unicode character strings using the UTF-16 encoding. This happens to be the same encoding used for Java strings, but even if it weren't that would not be a problem because either encoding is capable of representing all Unicode code points (characters).
The recommendation is the collation type must be case insensitive and accent insensitive, e.g.: 'SQL_Latin1_General_CP437_CI_AI'. If it is using your server default, check the collation type of your server.
CI = Case Insensitive and AI = Accent Insensitive
2. Connecting JIRA to MySQL
The database must have a character set of UTF8.
3. From Connecting JIRA to PostgreSQL
Create a database for JIRA to store issues in (e.g. jiradb) with Unicode collation.
4. From Connecting JIRA to Oracle
The Oracle database must be created with database character set UTF8.