I know there is a way to automatically create images, such as avatars, when a user does a certain action. But does anybody know exactly how that works? I want to create a avatar system for my forum site but I am totally lost on that.
I am not entirely sure what you are trying to do but if you actually want to dynamically create a whole bunch of images then its probably easiest to use the php image library.
If you are just trying to allow users to have their own avatars then that should be inbuilt into the forum package that you are using. Which software package are you using?
Look in my signature: the image is a PHP page that makes text on a background. You tell it what text you want, and then it makes it for you and gives you the image location.