An avatar is the little image that shows up next to your username. This is the derivation of the word, copied from Wikipedia:
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The "avatar" derives from the Sanskrit word Avatāra, meaning "incarnation" and usually implying a deliberate descent into mortal realms for special purposes. The term is used primarily in Hindu texts. For example, Krishna is the eighth avatar (incarnation) of Vishnu the Preserver, whom many Hindus worship as God. The Dasavatara are ten particular "great" incarnations of Vishnu.
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A signature is the image or text (or both) that appears below each post you make in the forums.