Whether we realize it or not, and whether we try to hide it or actively embrace it, one thing is certain - our in-character and out-of-character personalities often mix, and perceptions and emotion often mix. In Nordic larp there's even a word used specifically for it - bleed. From the jeepform dictionary:
Bleed is experienced by a player when her thoghts and feelings are influenced by those of her character, or vice versa. With increasing bleed, the border between player and character becomes more and more transparent. It makes sense to think of the degree of bleed as a measure of how separated different levels of play (actual/inner/meta) are.
There are two concepts for designing larp characters in terms of closeness.
Differentiation allows us to play characters which are radically different from ourselves. A mighty warrior. A religious fanatic. A wealthy statesman. A stealthy assassin. A powerful wizard. And many more. Differentiation can help us learn new insights about other people.
Playing "close to home" is playing characters which are intentionally similar to ourselves, with similar issues players themselves have or once had - illness, violence, addiction, relationship issues, unwanted pregnancies, deaths in the family etc. Playing close to home can help us learn new insights about ourselves. The effect is typically stronger and more realistic than if the same character was played by a person who had no such experiences.
While bleed can occur either way, it's typically much stronger and more common if you play "close to home". Note that it's a separate effect from immersion - though immersion often causes bleed, and vice versa.
Bleed can have a large impact both ways - both on the way we play (by putting our personal emotions into it) and on the way it affects us as players (because it does).
Bleed is very important, but also dangerous. It can let a larp affect us on a very deep and personal level. It can help players deal with their real life situations. But it's also been known to wreck relationships. People with in-character relationships falling in love with one another has been quite common, especially in Nordic countries since they commonly play for high bleed. It's very important to recognize bleed and how it affects us.
New players commonly have rather shallow characters similar to themselves - this is not instinctively "playing close to home", it's just new players testing the larp waters and being a bit shy. There are some methods to address it, such as running a pre-game workshop to get players comfortable with one another and introduce or reaffirm the game’s expectations, themes and mechanics (which is a good idea in general).
Players who talk about their characters all the time is also not bleed. Players who use their out-of-character knowledge for in-character benefits are meta-gaming (which is a whole different subject), not having bleed. If you always tend to group up with certain people on a larp and never with others, it can be bleed, but not necessarily. People who find an in-character excuse to mess you up out-of-character (or vice versa) are just being dicks, they're not doing it because of bleed.
Bleed is about strong, personal emotions caused by or spilled into a game. In horror atmosphere, it's often used to scare a player to scare his character (vice versa won't usually work as well). A strong leader in reality will also make a convincing strong leader on a larp. In romance situations, it's using your personal experiences with past relationship to manage your in-character relationships. Or re-living relationship situations. It's not uncommon that your in-character relationships influence how you feel out of game.
For these reasons, many nordic larps (which are heavy on bleed) feature "debriefings" at the end of the game, a structured post-larp talk among participants where they can discuss their experiences and get their feelings sorted enough to return to their own lives. Talking about it can help people assimilate and understand their larp experiences. Such debriefings are considered an essential feature of player safety on bleed-heavy larps (which commonly deal with diffucult subjects). Implementing more of these would probably be a good idea for any larp.
In a more gamistic larp environments, bleed is often seen as a more negative thing. Perhaps as a form of escapism. It can interfere with the game and create personal issues in the community, so it's often avoided.
In general, bleed is neither positive or negative. It can be either (or both), depending on your situation. But it's important to realize there will always be some bleed on a larp. You're experiencing larp fully and the truth is, it can change you and it can change your life.
In which situations did bleed affect you or your characters? Think about it, try to remember what and why you did. Feel free to put it in the comments if you want to share it.
And always be aware of it.