There are arithmetic and geometric averages, and the arithmetic average is the common one. In one type (the average-price type), a strike price is fixed in advance and the holder receives the difference from the average; in the other (the average-strike type), the holder receives the difference between the price at expiry and the average.
Consider a hypothetical example in which an average-price call has a strike price of 200 yen and the arithmetic average of observed prices is 225 yen. The payoff is 25 yen. If the average is 200 yen or less, the payoff is 0 yen and the premium paid is not returned. If the price rises only just before expiry, the average rises little, so the payoff can be smaller than that of a vanilla call on the same terms.