When to use utf-8 and when to use latin1 in MySQL?

If you allow users to post in their own languages, and if you want users from all countries to participate, you have to switch at least the tables containing those posts to UTF-8 - Latin1 covers only ASCII and western European characters. The same is true if you intend to use multiple languages for your UI. See this post for how to handle migration.

At a bare minimum I would suggest using UTF-8. Your data will be compatible with every other database out there nowadays since 90%+ of them are UTF-8.

If you go with LATIN1/ISO-8859-1 you risk the data being not properly stored because it doesn't support international characters... so you might run into something like the left side of this image:

If you go with UTF-8, you don't need to deal with these headaches.

Regarding your error, it sounds like you need to optimize your database. Consider this: http://bugs.mysql.com/bug.php?id=4541#c284415

It would help if you gave specifics on your table schema and column for that issue.

it takes 1 byte to store a character in latin1 and 3 bytes to store a character in utf-8 - is that correct?

It takes 1 bytes to store a latin1 character and 1 to 3 bytes to store a UTF8 character.

If you only use basic latin characters and punctuation in your strings (0 to 128 in Unicode), both charsets will occupy the same length.

Also, I tried to change some tables from latin1 to utf8 but I got this error: "Speficief key was too long; max key length is 1000 bytes" Does anyone know the solution to this? And should I really solve that or may latin1 be enough?

If you have a column of VARCHAR(334) or longer, MyISAM wont't let you create an index on it since there is remote possibility of the column to occupy more that 1000 bytes.

Note that keys of such length are rarely useful. You can create a prefixed index which will be almost as selective for any real-world data.