I was wondering, what do you do if you knock a character off a building, and they land on another character? Does it work like regular knockback rules and they don't fall off, or do they fall to the side of the character, or do they still take as much damage?

This problem seems to come up more often then not whenever I play a game.

From the Danger Room Rules, p. 25 :
If a character already occupies the first square beyond the boundary of the elevated terrain, the knock back path stops in the first unoccupied square (leaving the character on elevated terrain) and the character is dealt 1 knock back damage.

So they do not fall off of the building and land on the opponent. They stop in the last square before they fall and take 1 damage from knockback instead of the 2 from falling off.