This paper presents a review of literature that introduces major concepts and issues in using avatars and pedagogical agents in first- and second-person virtual environments (VEs) for learning online. In these VEs, avatars and pedagogical agents represent self and other learners/participants or serve as personal learning "guides". The paper offers insights into the relationship of online VEs and their components to computer games and discusses the roles of the Computer as Social Actor (CASA) paradigm, anthropomorphism, ethopoeia, and homophily in these learning environments. It defines and illustrates the terminology and conventions used in VE technology, discusses social aspects of human learning in online VEs, reviews relevant literature, introduces theories relevant to designing these environments, and suggests some models for research to advance the currently limited knowledge of how, why, when, and for whom these online learning environments may be most effective.