The AVI Codec refers to a method used to compress and decompress audio and video files in the Audio Video Interleave format. Developed by Microsoft in 1992, it allows for the storage of synchronized audio and video streams in a single file. This makes it easier to play multimedia content on various devices. AVI files can use different codecs for compression, which affects the quality and size of the file. Common codecs include DivX and Xvid, each offering different levels of compression and quality. The choice of codec can impact playback compatibility across different media players and platforms.