A slightly tricky one!
Basically, the data which was originally stored was originally UTF8 data, and it may or may not be stored on the server in a UTF8 table. The key thing that's usually responsible for getting the data in this state is that the database connection itself was using Latin1 - often the default state of the connection.
It used to happen quite a lot in web apps a couple of years ago - the front end would be updated to handle UTF8 data, and that data was saved in the database - but over a mysql connection that never had a 'SET NAMES utf8' (or wrapped database method) set. Each UTF8 multibyte character was therefore converted to a pair of Latin1 characters during transport between the database and the web app, although each end treats the data as UTF8.
If the same connection was used to read the data type - no problem, as the whole process is entirely reversible! This is what the "UTF-8 unicode via Latin 1" mode is emulating.
To convert the data, the easiest thing is to use a script in your favoured web language to perform the conversion. The easiest, but slowest, way is to read data while the connection is in Latin1, and then save it back over a connection set to UTF8 (and make sure all your tables are set to UTF8!).
Hope that makes a little bit of sense - it's rather tricky to explain...
--Rowan
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