How do you create and avi file?

First you have to tell us exactly what you want to do!
For instance, you use a program capable of reading incoming data from a camcorder such as Windows Movie maker or Serif's MoviePlus. They will automatically generate the AVI files.
Other programs will take presentations and generate an AVI, MPEG or whatever file for you, while yet others will transcode from MPEG, DivX etc to AVI.