Yep! Character devices are much closer to "stream of bytes", and from the FUSE perspective they look like a single file with limited operations (open, close, read, write). Think of something like a mouse (sending a stream of motion/click events) or a webcam (send stream of frames, receive basic control commands). If you've written even the most basic FUSE layer, you've got all the necessary handlers to implement CUSE too.

Block devices operate on blocks of data identified by offset. Hard disks, CD-ROM drives, USB sticks, basically anything where it'd make sense to say "read (or write) these 1024 bytes at offset 0x10000".

You can in principle implement a block device-ish API in FUSE by disabling open/close and requiring all reads/writes to be at given offsets -- IIRC this is how the "fuseblk" mode added for ntfs-3g works -- but the protocol is too chatty to be fast enough for things people want block devices for.

I've also heard the kernel's block layer error handling doesn't interact well with the FUSE protocol, but I don't know the details too well on that.