In a characteristics hierarchy, you place the characteristic values for a single characteristic into a hierarchical relationship.
In the information system, you can run analyses on a characteristics hierarchy.
A characteristics hierarchy is made up of nodes that can be posted to. These nodes are the characteristic values. Furthermore, you can add to the hierarchical structure by creating nodes that cannot be posted to.
You define characteristics hierarchies in Customizing under Master Data® Characteristic Values ® Define Characteristics Hierarchy.
The sectionCharacteristics Hierarchies in the documentation for Drilldown Reporting