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Character won't highlight
I put a highlighter component on a model and dragged that model into the corresponding hotspot field, but it doesn't work. The character is a prefab, if that helps.
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The character's Material must use a Shader that can be modified by the component - in Unity's built-in pipeline, you can use the Standard Shader.
It is possible to use other Shader types, provided that they have a _Color channel that can be modified at runtime. For details, see the Manual's "Hightlight" chapter.
I have bypassed this issue by writing an outline shader that triggers and grows to an adjustable size around the object when hovering over the hotspot. There is a script on the object you want to highlight then one on the hotspot that talks to it. Theoretically you could have something similar with a different effect, though I admit freely that my method is a little clumsy as it requires setting up each interactable object manually.
If all you want is a colour shift then I am certain Chris' method will be easier. I also didn't know there was another way. I really need to read that manual.