The SDK Manager is used to setup the android sdk, to update the android installation and to install related APIs and libraries. This application can also be launched from the android.bat file in the tools directory.
 

 
The AVD Manager is used to configure Virtual Devices. Virtual Devices emulate
physical devices such as phones and tablets.
 

 
This is a picture of a virtual device running on the desktop. This device was
launched from a shell project created in Intellij.