Originally, the word “avatar” referred to the physical incarnation of a god.
In the game world, the word is used in a nearly opposite sense, indicating the digital representation in a virtual world or game of a physical person. In both uses, an avatar is the manifestation in one world of a being that exists also in another world – and often in different forms – spiritual, digital, or physical – depending upon the capacity of the world to hold such a being.
The term is most often used in reference to a representation of a player in a virtual world or an online, multi-player game (an MMORPG, MMOG, or MMO). These avatars are often customizable (to minor or great degree), and the player usually must provide a name for the avatar upon creation, causing some investment of the player into the characteristics and fate of their avatar.
This investment of a player into his or her avatar’s characteristics is seen by some theorists to be greater than what players invest in generic characters, usually found in single player games and has sparked a number of research studies into online identity. See, for instance, the third chapter of What Video Games Have to Teach Us About Learning and Literacy, in which Gee describes the three identities involved in online gaming and their positive ramifications for educational practice.
Gee, J. P. (2003). What Video Games Have To Teach Us About Learning and Literacy. New York, NY: Palgrave Macmillan.