I am preparing to an exam in representations of finite groups. I am trying to tackle a problem regarding a characterization of irreducible characters: Let $f$ be a complex-valued function on a finite group $G$. Then: $$\forall x,y\in G: f(x)f(y) = \frac{f(1)}{|G|}\sum_{z\in G} f(yzxz^{-1}) \leftrightarrow f \text{ is proportional to an irreducible character}$$
I have made some progress in $\rightarrow$: if $f$ is identically 0, then RHS is implied. Otherwise, it is easy to see that $f$ is a class function (choose $y$ such that $f$ doesn't vanish on it, and notice that $\{yzxz^{-1} | z \in G \}$ is invariant under conjugation of $x$. I thought about proving $\leftarrow$ and then writing $f$ as a combination of irreducible characters.
I also noticed the following: $f(1)$ is the degree of the representation when $f$ is a character (and it appears often in orthogonality relations). Also, the projection on an isotypical component (corresponding to an irreducible representation $\pi$) of a representation $\rho$ is $\frac{\chi(1)}{|G|}\sum_{g} \overline{\chi(g)}\rho(g)$ (where $\chi$ is $\pi$'s irreducible character).
To sum it all: I have some directions, but haven't used orthogonality relations explicitly, for example. Can you help?
EDIT: Some more advances: I've noticed that if $\phi$ is a class function, the equation is equivalent to $$\sum_{z\in G} \phi(x) \phi(z^{-1} y z) \sim \sum_{z \in G} \phi(x (z^{-1}yz))$$ which looks nicer ($\sim$ implies that LHS is proportional to RHS). By putting $y=1$ it is easy to deduce that $\sum_{z\in G} \phi(x) \phi(z^{-1} y z) = \phi(1) \sum_{z \in G} \phi(x (z^{-1}yz))$ (i.e., $\phi(1)$ is the ratio). Some directions in $\leftarrow$: if $\rho$ is an irreducible representation with a simple character $\chi$, then we can let $\rho ' = \sum_{z \in G} \rho_{z^{-1}yz}$. The equation becomes $Tr(\rho_x)Tr(\rho ') = \chi(1) Tr(\rho_x \rho ')$. The product of characters might suggest use of tensor product.
user8268 already pointed out how to finish your proof for $\leftarrow$. For $\rightarrow$, too, your ideas lead in the right direction.
As you showed, if $f$ satisfies the equation, it's a class function; and as you realized, $f$ can then be written as a linear combination of irreducible characters. So let
$$f(x)=\sum_ic_i\chi_i(x)\;,$$
where the sum runs over all irreducible characters and the $c_i$ are complex constants; and let $\rho_i (x)$ be irreducible representations with characters $\chi_i(x)$. Then
$$ \begin{eqnarray} \sum_{z\in G}f(yzxz^{-1}) &=& \sum_{z\in G}\sum_ic_i\chi_i(yzxz^{-1}) \\ &=& \sum_{z\in G}\sum_ic_i\mathrm{Tr}\rho_i(yzxz^{-1}) \\ &=& \sum_{z\in G}\sum_ic_i\mathrm{Tr}\left(\rho_i(y)\rho_i(zxz^{-1})\right) \\ &=& \sum_ic_i\mathrm{Tr}\left(\rho_i(y)\sum_{z\in G}\rho_i(zxz^{-1})\right)\;. \end{eqnarray} $$
Now, again, by Schur's lemma $\sum_{z\in G}\rho_i(zxz^{-1})$ is a multiple of the identity, since it commutes with all $\rho_i(g)$:
$$\sum_{z\in G}\rho_i(zxz^{-1})\rho_i(g)=\sum_{z\in G}\rho_i(zxz^{-1}g)=\sum_{z\in G}\rho_i(gzxz^{-1})=\rho_i(g)\sum_{z\in G}\rho_i(zxz^{-1})\;.$$
Thus $\sum_{z\in G}\rho_i(zxz^{-1})=\kappa_i(x)\mathbb I$, with a complex constant $\kappa_i(x)$ that we can evaluate by taking the trace,
$$\kappa_i(x)=\frac{\mathrm{Tr}\sum_{z\in G}\rho_i(zxz^{-1})}{\dim\rho_i}=\frac{\chi_i(x)}{\chi_i(1)}|G|\;,$$
so $\kappa_i(x)$ as a function of $x$ is proportional to the irreducible character $\chi_i(x)$. Thus we have
$$\sum_{z\in G}f(yzxz^{-1})=\sum_ic_i\kappa_i(x)\mathrm{Tr}\rho_i(y)=\sum_ic_i\kappa_i(x)\chi_i(y)\;,$$
and the equation becomes
$$f(x)\sum_ic_i\chi_i(y)=\frac{f(1)}{|G|}\sum_ic_i\kappa_i(x)\chi_i(y)\;.$$
This is an equation between two linear combinations of the irreducible characters $\chi_i(y)$. Since these are linearly independent, we can equate the coefficients individually:
$$f(x)c_i=\frac{f(1)}{|G|}c_i\kappa_i(x)\;.$$
For each $i$ with $c_i\neq0$, this yields
$$f(x)=\frac{f(1)}{|G|}\kappa_i(x)\;.$$
But $\kappa_i(x)$ is proportional to the irreducible character $\chi_i$, and thus so is $f(x)$. (It follows that all the $c_i$ except at most one are zero.)