If you want to set custom hardware emulation options for the AVD, enter "yes" and set values as needed. If you want to use the default hardware emulation options for the AVD, just press the return key (the default is "no"). The android tool creates the AVD with name and system image mapping you requested, with the options you specified.
If you are creating an AVD whose target is an SDK add-on, the android tool does not allow you to set hardware emulation options. It assumes that the provider of the add-on has set emulation options appropriately for the device that the add-on is modeling, and so prevents you from resetting the options.
For a list of options you can use in the android create avd command, see the table in Command-line options for AVDs, at the bottom of this page.
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