Source: Warhammer Fantasy: 4th Edition

Hand-to-Hand Fighting (Characters)
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When a unit closes with its enemies in hand-to-hand fighting character models will inevitably find themselves confronted by enemy troops. When a model is fighting it can strike its blows against any enemy model whose base it is touching. In the case of troopers confronted by character models they will usually have the option of striking at a character or an ordinary enemy, as bases will inevitably overlap slightly as you move the models into combat.

Characters may sometimes come into direct combat against enemy characters, but the same choice applies to them - they may attack any enemy whose base they are touching. The exception to this is the Challenge, as described below.

Note that if a character has, say, 4 attacks and is only facing 2 enemy models then his attacks are worked out against the 2 models he is facing. However, if the character scores sufficient wounds to slay 3 or 4 models then the enemy loses 3 or 4 models, not just 2.

Don't be fooled by the fact that models are static and the battle lines rigid and straight, what we are representing is real combat! Heroes strike to their left and right, stepping forward to deliver fresh attacks, cutting down foes who step forwards to block a gap, and driving down those who confront them.