The Stream Avatars program is available via Steam. It's a separate program that allows you to add your owns sprites to a simplified game engine. Anyone can purchase and run the software for themselves.
It comes with a selection of default sprites and other schemes are available for download. There are instructions available to add your own images and how to create sprite sheets to create the simple (or more complicated) animations.
The ESO themed avatars are designed by me. There are "baddies" for initial followers of the channel and the standard Tamriel races for followers who have earned in-stream currency by watching (15 minutes should give you enough gold to buy a character).
Customised avatars are available for Subscribers to the stream. Subs can request modifications to an existing avatar, including things like colours, clothing, wings, and other features.
Everyone can also purchase "gear" for their avatars allowing them to customise their look further. More default avatars and gear will come over time.
Backgrounds are adapted from ESO artwork from www.elderscrollsonline.com and pixelated to match the avatars.