I'm learning blender and am wondering what size(blender units) I should be making my characters and maps. should i consider 1 blender unit as 1 inch, foot, meter or does it not not matter?
The build-in physics engine assumes 1 BU (Blender Unit) = 1 meter. However, you can use whatever you like, and since Blender 2.5 you can also set an explicit conversion to real-world units (properties editor -> scene tab -> units panel). Keep in mind what kind of values your game engine expects, too - most exporters can re-scale the model during the export (same for importers), but not all of them do.
Whatever your choice is, keep in mind that the practical smallest unit you can work with is 0.001 BU (Blender will happily record and create smaller or more precise values, but will not display them to not clutter the UI), and that the maximum clip distance is 5000 BU - anything bigger will be hard to work with.
If you want to model mostly human-sized entities, including clothing and most tools for such, it makes sense to have 1 BU be equal to 1 mm. If you're more comfortable with "imperial" sizes roughly the same scale would be using 1/20th or 1/24th of an inch. This will make the smallest features you'll likely care about be about 1 BU in size and - for comparison - human hair have 0.01 to 0.2 BU in diameter.
For typical architecture, 1BU = 1m (or one yard for imperial units) will work fine. This will allow you to easily model almost every building (excluding some bridges) and vehicle built to date.