Characters mixed up: a horse and sheep (7)
I believe the answer is:
anagram
'characters mixed up' is the definition.
(letters or characters being rearranged)
'a horse and sheep' is the wordplay.
'horse' becomes 'nag' (term for an old horse).
'and' means one lot of letters go next to another.
'sheep' becomes 'ram' (male sheep).
'a'+'nag'+'ram'='ANAGRAM'
(Other definitions for anagram that I've seen before include "For racing tipster, starting price, for example" , "pouring the tea?" , "Gelding can be niggled by this" , "Cruciverbal jumble" , "reordering" .)