Harmonics

http://en.wikipedia.org/wiki/Voltage_optimisation#Harmonics

http://www.cpccorp.com/harmonic.htm

i) Harmonics is one of the measures of power quality. Apart from the continuity, voltage & frequency limits, the voltage wave form must also be as close to sinusoidal as possible. Harmonics distorts this wave shape of the power supply and thus it affects the RMS value of the voltage and/or current. Thus, it becomes a measure of power quality.

ii) There is no "ideal" pattern for harmonics, for harmonics itself is away from the ideal. It contains all haphazard patterns. Distortion can be corrected by the provision suitably rated harmonic filters or by avoiding the use of harmonic generating equipment. It affects load equipment by skin effect, by negative sequence currents, by hot neutrals, etc.

iii) Almost all electric components are affected by harmonics, rotating electrical equipments being the most vulnerable.

Is employing AVR helpful to eleminate harmonics? What does AVR do to power supply?

Nop.. AVR is used to mitigate over/under voltage problem. To suppress harmonics, you need filter.