Firstly go to SDK manager plugin of Your eclipse/Android Studio and choose the API level for which you are going to create Android Virtual Device. And make sure that API's SDK Platform is installed. If SDK showing Not installed , then firstly download it.
After automatic Installation on Downloading completion. Restart your eclipse. Start your AVD plugin and then select the API for your AVD that you download.
Check this image, it showing that SDK platform for API 17 is installed. So we can create AVD of API 17. BUT we cant create AVD of API 16, because it is not installed yet.