They're used to lessen confusion with who's damage meter is which. I'm not an idiot, but sometimes late at night when I'm a bit tired and playing with friends, I can't see the little face icons and the logo behind the damage number. The faces just ease the process.
Plus, they don't get in the way. If you notice, in demo videos and what not, the avatars become transparent whenever there's a character/item behind it, so you can see what's going on.
but why a picture? it works just as well with the old tiny heads for stocks. it's not like it's impossible to make it work with tiny heads. we're in the 21st century. it works just fine with the character's name right below the damage counter/character's emblem.
like, was this the conversation they had while coming up with the idea?: "okay, so we're adding all this sh*t to the game, and just so we please *everybody,* let's add this too, 'cause we know someone is going to be dumb enough(in some of the least likely scenarios) to forget which character he picked and where his damage counter is. put mario's f*cking face, his mushroom kingdom emblem, the damage counter, and his name right below it."
anyways, i know the avatars go translucent from the videos in certain situations, but that's like saying they *know* it's going to be in the way or bother some people. hopefully hopefully hopefully, there will be an option to turn it off.
the way i see it: boxers already have their names/nicknames written on their trunks. what if they gave the boxers t-shirts with their faces on it? that's basically what they're doing with brawl. to me, at least.