If a card text says "KO target character", does it mean directly pick an opposing character to the KO zone without engaging in combat?
And if say "when KO'ed" it actually mean attacked or blocked resulting losing or KO'ed.
Select one specific character die in the Field Zone and immediately KO it. Abilities can only target dice in the Field Zone (rulebook text), so it cannot target a die in the Reserve Pool. It can be either one of your characters or your opponents. Sidekicks are considered to be characters when on their Pawn face in the Field Zone, so they are valid targets. Some abilities can prevent characters from being "targeted", that would apply here. If a character has an ability that triggers "When damaged", an instant KO will not trigger that ability.
If a character has an ability that triggers "When KO'd", it would trigger anytime the die is KO'd (from an ability/effect, or from damage >= its Defense value). It can receive said damage from an ability/effect, and/or from combat (as either the attacker or defender). Damage dealt (from an ability or Global, for example) will remain until the end of the turn, when it is cleared as part of the Clean Up Step.