An avatar in Hindu mythology is the reincarnation of a diety in the form of a man or animal. An avatar is a visual representation of a person within a virtual world. I often describe the Hindu usage of the term as a personification of a deity on earth. You could describe this as the deity moving to another world, more limited than the heavens that the deity normally exists in. The Internet enables people to form communities in new and unique relationships.
Avatars are another medium of communication, beyond verbal mediums such as speech or text.
Avatars add body language to the mix. The social implications of this distinction were a major factor in the discussion. We discovered that users wanted to know whether they were talking to a bot or to a person. In the next year or two, I anticipate that there will be more commonality between avatars developed at different software houses. Since we all recognize that certain basic behaviors like waving, laughing, smiling, etc., are very important, we are working on standardization efforts to allow avatars and avatar behaviors to travel through a wide variety of products.