The blog avatar is the image that goes to the left of your blog title. If you have prepared one beforehand it must be at least 256 x 256 or could risk being pixelated.
To add it in go to "Settings" on the left rail of the dashboard and select "Blog Avatar". You'll select "Browse" and get the image you want to use then hit "Upload". Crop the image as needed.
If you want to add a different one hit "reset" and then upload a new image.