How to build Castle Crashers character?

I've actually dumped all my eggs in one bucket for all 4 types to see how they affect gameplay. Here are my observations for each:

Melee: This is an excellent strategy if you know how to juggle and stay in the air indefinitely. Pumping all your stats in melee is excellent, since air combos can keep almost all enemies stunned indefinitely if you time it right. Probably the easiest playthrough for me.

Defense: I literally become a cross between a tank and a punching bag. The flinch and knockback kept me from doing much, not to mention it took forever to kill most stuff. I'd recommend upgrading this alongside another stat, or only after you max out another trait.

Magic: I found this was phenomenal early to mid-game, but once I started getting into end-game stuff, my mana couldn't keep up with the damage output I wanted. If you're part of a team that can provide cover, it's one of the best stats to focus on due to its versatility. If you're going solo, it becomes difficult late-game waiting for mana to recharge. If you're cornered and are forced to exhaust your mana in burst damage, you either run around like a chicken with its head cut off or use your melee for a whopping 1 damage.

Agility: Out of all my playthroughs, this is the one I enjoyed the most. Once you have full speed, you become a sprinting ninja with a semi-automatic bow/arrow. You can deal a solid amount of ranged damage, not to mention evading anything becomes incredibly easy. If enemies get too close you just sprint to the other side of the screen and resume your firing. Timing of the bow is key here- fire too fast and shots won't register; fire too slow and you're missing out on higher DPS. What's awesome is that once you max out this stat, you can actually juggle enemies by firing the bow just right.

Each character trait requires a different talent to master; I'd recommend giving each of them a shot and figure out which you have a knack for. Once that stat is maxed out, put everything else into defense or agility.

If the character has messed up stats, does any reset tool/item exist?

Unfortunately not. Once you allocate your skill points to the desired stats (as in confirm), you cannot de-allocate or reset them. Unless you count resetting your particular character's entire progress back to level 1.

So if the stat allocation for a character is borked, you either need to restart or grind up earlier levels to gain more experience and levels. Probably want to upgrade you gear as well.

What's the best way to develop a Castle Crashers character?

It all depends on your play style. Of course, some bosses are easier to take down with certain builds over others. The character you chose at the start also plays a role as some of them have better movesets than others.

In the end, once you reach max level, you'll be able to max out almost all of the four stats. My suggestion in the early to mid levels is to play with other players, in order to complement strengths and weaknesses in your own builds.