An avatar is a image or picture that is displayed below your name in the topic. the older version only allowed you to select pre installed images.
This feature allows you to upload your own image to use.
I just tested this by uploading a picture of myself which will now appear below all my posts. There are limits to what size the picture is but you can access it from My Stuff- My Profile

Hint: This is a preclude to other features that will be enabled soon.

PS-This is a old picture.