The Unicode character set occupies a 16-bit code space. The most obvious Unicode encoding (known as UCS-2) consists of a sequence of 16-bit words. Such strings can contain bytes like '\0' or '/' which have a special meaning in filenames and other C library function parameters. In addition, the majority of Unix tools expects ASCII files and can't read 16-bit words as characters without major modifications. For these reasons, UCS-2 is not a suitable external encoding of Unicode in filenames, text files, environment variables, etc.
The UTF-8 encoding of Unicode and UCS avoids the problems of fixed-length Unicode encodings because an ASCII file encoded in UTF is exactly same as the original ASCII file and all non-ASCII characters are guaranteed to have the most significant bit set (bit 0x80). This means that normal tools for text searching etc. work as expected.
UTF-8 is defined in RFC 2279.
["File System Safe UCS Transformation Format (FSS_UTF)", X/Open Preliminary Specification, X/Open Company Ltd., Document Number: P316. This information also appears in ISO/IEC 10646, Annex P].