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AVERAGEIF in Excel is used to average selected values based on a specific criteria. In this tutorial, a table with Year and Value columns is used as an example. The AVERAGEIF function requires three parameters: the range of cells to apply the criteria (A2:A7 in this case), the criteria to be applied, and the range of cells to average. In the tutorial, the criteria is set to find values where the year is equal to 2012.