Hi kat.
I can answer part of your question. I created my avatar in the Sims 3 game. You need to go into Create a Sim and create the Sim that you want to be your avatar, including traits and Lifetime Wish. Once complete, click on the button with three dots beside the miniature picture of your Sim at the bottom. Choose "Share." Then click on the button with three dots in the lower left corner of the screen and select Launcher. When the Launcher opens, you can upload your Sim and it will be the headshot you see here.
I can also tell you that you upload the avatar/headshot through the Profile option here on the forum. Then under Modify Profile, you select Forum Profile Information. From there, you can choose to browse your computer and upload a picture.
Now, what I'm not able to tell you at the moment is how to get it from the Sims launcher to your computer hard drive. I'm sure it's very easy, but I'm drawing a blank and can't recreate it for some reason. I'm sure some of the others can fill in this part.