The first character indicates the class:
0 Druid
c Hunter
o Mage
s Paladin
b Priest
f Rogue
h Shaman
I Warlock
L Warrior
j Death Knight
The remaining characters indicate where in each tree points have been allocated. Each tree is separate, delimited by 'Z'. So if e.g. all the points are in the third tree, then the 2nd and 3rd characters will be "ZZ" indicating "end of first tree" and "end of second tree".
To generate the code for a given tree, split the talents up into pairs, going left-to-right and top-to-bottom. Each pair of talents is represented by a single character. So for example, in the DK's Blood tree segment, the first character will indicate the number of points allocated to Butchery and Subversion, and the second character will stand for Blade Barrier and Bladed Armor.
What character represents each allocation among the pair? I'm sure there's an algorithm, probably based on the ASCII character set, but all I've worked out so far is this lookup table. Find the number of points in the first talent along the top, and the number of points in the second talent along the left side. The encoded character is at the intersection.
0 1 2 3 4 5
0 0 o b h L x
1 z k d u p t
2 M R r G T g
3 c s f I j e
4 m a w N n v
5 V q i A y E
So if our Death Knight has one point in Butchery and two points in Subversion, the first character is 'R'. If instead we put no points in those two and five in Blade Barrier, the first two characters will be "0x". Trailing '0's (all the other pairs in the tree with no points allocated) can be omitted, as can trailing 'Z' delimiters (when there are no points in the subsequent trees). For one final example, the entire code for a DK with just a single point in Toughness would be "jZ0o": "Death Knight", "End of the first tree", "No points in the first pair of talents", "one point in the first talent of the second pair".
Can anyone work out what function generates the lookup table above? There's probably a clue in the codes for the classes: in alphabetical order (except for the DK which was added to the game after the others), they correspond to a series in the lookup table of (0,0), (0,3), (1,0), (1,3), (2,0), etc.