AVI is simply a "container." It could be encoded in a number of different formats.
Like nixgeek said, Flip4Mac and Perian will take care of most of the AVIs you need to watch -- but I prefer the combination of Flip4Mac and the Divx components, available from http://www.divx.com. The only AVIs I cannot play are AVIs that have "ms" as the audio encoding format, but a quick spin through VisualHub takes care of that for me.
VLC player plays almost all video types that i have come across and i highly recommend it. its a small program that can be downloaded for free. just google "VLC"
VLC can convert AVI files to other formats, which can then be imported into QuickTime Pro (or your favorite movie editing software, like iMovie, Final Cut Pro/Express, etc.) for editing.