The command Avoid brings a defensive bonus in space battles with enemy ships, but the spaceships remain -unlike in retreat- in the same sector and participate in the battle. Allowing ships to avoid is actually a suicide, because either the battle draws out or, and this happens more often, the fight is lost. Setting all ships to Avoid is not the same as Hail. In case of Hail the ships will return fire when being shot at. Although truth is, if all of both your and opponent's ships in one sector are set to Avoid, no combats occur.
It may not be a bad idea to equip a fleet with weak Colony ships set to Avoid though. Apart from boosting the fleet damage bonus these ships can serve as a meat shield for your bigger ships.
It may also be a good idea to give your flagship an Avoid order, but only if it would have had only a little effect on the battle (for example two huge fleets meet) to save it from destruction and [morale] loss.