It appears the idea they are trying to patent is that, in a 3D world, when you turn the camera to look a given direction, you should only see some avatars, and not others (that is, only the ones in your field of view). Additionally, if there are a lot of avatars, this patent claims protection for the idea that the client can implement a maximum number of avatars to display, and to use the knowledge of the maximum number to display, combined with the position information, to determine some subset of the avatars to display (presumably the X nearest avatars, where X is the maximum number to display, though the patent doesn't specify this explicitly).
Neal Stephenson covered this in 1992 in Snow Crash when he described the behavior of avatars in the Metaverse (the 3D virtual world in the novel). In large crowds the clients would typically display other avatars as ghosts to cut down on rendering time and to avoid avatar collisions.