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Athelstane is a good friend of Cedric's, so much so that Cedric decides to marry his ward, Rowena, off to the guy even though she doesn't love him. The reason Cedric is so keen on a Rowena-Athelstane marriage is that Athelstane would be heir to the English throne if it weren't for the Normans. He is Saxon royalty, and even now still a rich landowner. Rowena is a descendant of that great Anglo-Saxon king, Alfred the Great. So if Athelstane and Rowena were to have kids (as Cedric hopes) they would be able to refresh and reenergize the bloodlines of the Saxon royal house. And then they could boot out the Normans! All would be right with the world once more, if only a Saxon were on the throne of England.
At least, these are Cedric's dreams for Athelstane and Rowena's future. Athelstane seems to like Rowena okay, but he's not a particularly active type. His main character trait is his love of food and drink. Sure, when Athelstane gets caught up in a battle, he'll put up a good fight (as in the Battle at Torquilstone, where he fights against the Normans who have taken him captive along with Rowena and Cedric), but he's mostly lazy and greedy. He doesn't seem like the kind of guy you'd pick to lead a revolution against the Normans.
Cedric believes that at heart Athelstane has the makings of a great Saxon lord, but that his lifestyle has made him spoiled and selfish. Apparently Athelstane's nickname is "Athelstane the Unready" (7.26), meaning that he has a lot of potential, both in his bloodline and in his character, but he never quite seems to get there as a leader of men. (We think this name is probably also a reference to the 10th century king of England, Aethelred the Unready, who lost his throne thanks to bad advice.)
The most exciting thing to happen to Athelstane is his near-death experience. During the siege of Torquilstone, he takes on Bois-Guilbert to try to stop him from carrying off Rebecca. (Athelstane thinks Bois-Guilbert is carrying off Rowena, not Rebecca. We think if he had known it was Rebecca Bois-Guilbert was carrying off, he might not have bothered to interfere.) Bois-Guilbert conks Athelstane on the head and he falls so deeply unconscious that everyone thinks he's dead. A bunch of monks from the local Priory of Saint Botolph carry Athelstane off to hold a vigil and then bury him.
Near the end of the book, in the middle of his own lavish funeral at his castle, Athelstane suddenly appears. It turns out that the monks have been holding him captive for three days. The Priory of Saint Botolph would get Athelstane's estate if he died with no heir, so when Athelstane suddenly regained consciousness after the battle, the Abbot decided to chain him up in the basement, letting everyone think he was dead.
Athelstane manages to escape (terrifying Friar Tuck in the process), but his rage at this treatment teaches him an important lesson: he's not really interested in leading a life of danger and adventure. He just wants to settle down peacefully on his lands. All the excitement at Torquilstone really freaks Athelstane out. As soon as he sees King Richard I at his funeral, Athelstane swears his loyalty to the throne. He also tells Cedric that he won't marry Rowena – she's in love with Ivanhoe anyway. Athelstane's main ambition in life becomes a modest one: he wants to punish that Abbot at the Priory of Saint Botolph for locking him up and feeding him bread and water. And he does! So Athelstane ends Ivanhoe a perfectly happy man, even if he isn't king of England.