I've heard different things. What exactly is atrophic vaginitis?

Inflammation. Atrophic vaginitis happens when the vaginal tissue becomes irritated and inflamed due to the thinning of the tissue that happens after menopause. It usually causes burning, and/or itching and a discharge.
Atrophic Vaginitis. http://www.medterms.com/script/main/art.asp?articlekey=7010 the definition is: thinning of the lining (the endothelium) of the vagina due to decreased production of estrogen. This may occur with menopause. Vaginitis means inflammation of the vagina, the muscular canal extending from the cervix to the outside of the body.
Thin skin. The vaginal skin is very sensitive to estrogen. Without it, the tissue gets very thin, dry, and doesn't stretch well. Estrogen used directly in the vagina is the best treatment. It increases cell growth, strengthens the walls, and promotes good bacteria decreasing the risk of bladder infections.