Well as usual I did it arse over tip, talking about clothes, when first you might want to get your movement and skin right. Both subjects will 'define' your avatars personality as much as their clothes..... bad girl, gangsta, or heroic ninja - the way you move is key.
AO stands for Animation overide, and your little cartoon Avatar is very versatile in this, adding to or replacing the Linden basic movements. Want to jump like the girl in the Matrix? Fly like Superman? or walk like Jessica Alba? Then either altering or replacing your AO is the way to go.
Again there are free animations and with a bit of help (again look at TUi and NCI) you can build your own but there are some high quality animations out there for those with the lindens!
If nothing else go and get a feel for some of them at the posing stands at the following shops:
Torridwear: Good entry level AO's and cheap clothing
Pixel Spa: complete AV's with hair, AO and clothes in a range of nationalities and races
SE Emotions: more upmarket AO's catering for models, but nice animations
Vista AO's: Good AO's at entry level
Cost varies - as much as your need to customise yourself - if you are looking for modelling poses try SE. But with a little effort you can achieve the same results for free.
Youtube has some useful tips on life in SL.