It's likely handled the same way live did it with their merges/splits over the years. Duplicate names get an "x" at the end, and any toons beyond the # of char slots are buried in the list until you delete a character to free up the slot. Just like vendor mining.
One would hope they'd increase the # of char slots, but /shrug if the version they're running supports that. A simple workaround would be to allow transfers to new accounts, but we all know it would be abused - so we're stuck with clearing slots ourselves.
-Mcoy
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