Average Ranking takes all of your keywords that are ranked in the system, and calculates their average ranking overtime.
You can select which dates to compare by clicking "compare to" in the top right and selecting intervals.
Why average ranking should be used with caution.
Average ranking only takes into consideration the keywords we find rankings for, that is, keywords that are ranked in the top 500 in Google and top 100 in Bing.
An example of why a positive change can impact average ranking negatively:
We have two keywords;
Keyword 1 is ranked no. 1
Keyword 2 is ranked "outside top 500"
The average ranking would be 1, since we don't have a rank for keyword 2.
Now, if keyword 2 is ranked 100, with keyword 1 staying at rank 1, our average ranking goes from 1 to 50.
Want to know how many keywords are unranked? Click here to read about Ranking Distribution.