http://www.python.org/dev/peps/pep-3120/
Edit: Your question might be answered at SO: http://stackoverflow.com/questions/1838170/what-is-internal-...
For external IO, internally it's in UTF-16 (actually UCS-2, mostly unaware of surrogates) or in UCS-4 (via a compile-time switch).
See http://docs.python.org/c-api/unicode.html#Py_UNICODE for the Py_UNICODE API.
http://www.python.org/dev/peps/pep-3120/