There's one on each main stage which includes Mines, Jungle, Ice Caves, and Temple. These characters will randomly show up in coffins as you play through each stage, one per stage and the color unlocked seems to be random.
Going by color since they don't have a name, you can unlock LIME, YELLOW, LIGHT BLUE,
characters in this fashion.
Furthermore, the jungle warrior (BROWN)
character is unlocked by beating the game the first time.
is unlocked via the worm level, which one may reach by attaching a damsel/dude/pug to one of the sticky orange blobs (worm-tongues) found in jungle and ice cave levels. Then simply wait until the screen rumbles and a giant worm appears, swallowing anything still stuck whole - taking you to the worm's insides. The easiest way to get yourself and the damsel both on the blob is to jump on the top middle while carrying her and simply press
, releasing her onto the blob while moving yourself and her very little if at all.
SHE DOES NOT NEED TO BE ALIVE TO ATTRACT THE WORM!
SMB will be found near the very bottom. You know you're getting close when you pass the Crysknife, a permanent whip upgrade located at about the halfway point in an extra large acid pool. It's worth noting the level will be populated by enemies from whichever zone you left to arrive in the worm, in addition to normal worm enemies.
character is found on the Haunted Castle level, which is accessed via the Jungle during the "The dead are restless!" event. Locate the tombstone with the crown on it, there is a skull with a crown atop it visible below the tombstone. Place a bomb where you found the skull to reveal the entrance, located two blocks beneath! Once inside, the easiest method to obtain the character would be climbing the top of the castle to the far left and bombing your way inside to the coffin. Otherwise, prepare to face the Black Knight and his mighty Shield!
The final character, Yang
(from the tutorial) is unlocked by rescuing him from the Hell area. Getting there will be no easy feat, requiring you first to complete the steps to get to the City of Gold, and from there grabbing the Necronomicon, defeating the book's evil guardian, destroying Olmec, and then locating the door to hell itself somewhere above the lake of lava the final boss fight takes place above. Best of luck!
(it's been pointed out that the book will flash similar to the Udjat Eye when above the door, and you MUST stand on dying Olmec's head to be able to enter the door!)
Rescuing every character will get you:
The Entire Gang - 10
Rescued all 8 hidden characters.
Currently not 100% on whether or not you can grab these in co-op or if it has to be a single player run.