Character Palooza is something I would think only exists in rumor, had I not seen photos of it myself. It’s so secret that Cast Members (Disney Employees) may say it doesn’t exit.
What is it? It’s a seemingly random mass appearance of usually rare characters in Hollywood Studios. It is, in fact a scheduled thing that if you subscribe to via Kenny the Pirate, character expert extraordinaire, you can work into your Walt Disney World touring plans.
Memory Maker photographers are NOT on hand, and it only lasts 15-20 minutes adding to it’s reclusive nature. It typically takes place at the Main Entrance of Hollywood Studios or in the Animation Courtyard near Disney Jr.
My best guess is that these characters are the same characters that appear in Fantasmic!. Since they are there already, why not parade them around for a short while and make some Disney magic?
For more information check out this post.