A team's velocity is the number of points it completed during an iteration. A team's velocity is calculated by adding up the points of the work items that were completed and disregarding the ones that were not. Completed, in this case, includes testing and integrating the work item with the rest of the project. Considering only the fully completed work items prevents the team from having to estimate how much of a work item has been finished.
The average velocity is calculated by adding up the velocity of each iteration and dividing by the number of iterations that were included. The team's average velocity becomes more accurate as the team works, because more iterations are included.
Knowing a team's average velocity is useful because it is used to estimate how many points the team can complete during future iterations. During the beginning of each iteration, the team commits to completing work items based on their average velocity. The team should commit to approximately the same number of points as they can normally complete, unless there are extenuating circumstances, such as a shorter iteration before a release or a team member going on holiday for part or all the iteration.
Average velocity is a good way to measure how much work a team can do because it considers the team's work over the time it has been together. It is fairly accurate when the team starts working and becomes more accurate as the project progresses. Should experience speed up the team's progress, the average velocity will increase; if team members are added or removed, the average velocity will adjust to the new work level. If the team keeps track of when its composition changes, you can predict how long it will take them to adjust their average level of work after team members are added or removed. The average velocity can also be used to predict how many points the team will be able to complete in a set amount of time, by multiplying it by the number of iterations that will be completed in that amount of time.
Velocity is a good method of determining workloads, keeping track of progress, and estimating future progress. Velocity and average velocity are useful methods for an agile framework because they are easy to calculate, require little paperwork to keep track of, and modify themselves to reflect changes in the team.