You roll up balls of objects into stars. Once you get big enough, you start rolling up people. What happens to the people once the Katamari turns into a star?
Katamari Damacy: As pointed out on its own page, everything and everyone who gets rolled up into a star is apparently still alive.
It's heavily implied that they aren't harmed, though, as it has a recurring family that you can roll up in each game, and that even congratulate you when you roll them up into the Moon. How aren't they harmed? Well... it's probably better not to ask. This is further muddled by inconsistencies in what the game will let you do—you can't roll up anything living in the bonfire Katamari, instead setting the hind ends of people and animals ablaze as they run off, but you can roll up living things as the sumo wrestler, which get absorbed, kicking and screaming, into his body. Again, probably best not to dwell on it too hard.
You get to roll up the King in We Love Katamari, and aside from being fresh as a daisy afterward, he straight-up tells you that being rolled up feels good. Of course, he always did have curious tastes.
In Japanese, the word for star ("hoshi") can also mean "planet". Anyone rolled into the Katamari would be living in the now reborn planet.
If the official webcomic is any indication, people get rolled up all the time, sometimes more than once. They just... come back to Earth. Somehow.
Michiru: You have rolled me up before... Kind of a lot of times... One time you rolled my whole family up on the moon.
Fridge Logic: For all of the stars in the game, your katamari only needs to be 30m at the most. The constellations can be just as small. For the moon however, which is thousands of times smaller than even the smallest star in the universe, you need to have at least a 300m katamari. Though this would make sense if all of these objects were the same distance from Earth, it makes absolutely no sense for anyone with a basic understanding of astronomy.
It rolls back into Fridge Brilliance when one realizes that, although stars are obviously bigger than the Moon, when you look up at the night sky from your perspective on Earth the Moon is the biggest thing up there and stars are comparatively tiny.