AVR  means Automatic Voltage Regulation.

What AVR does is to maintain the mains voltage within a particular safe voltage range.

In the case of your UPS, it increases the voltage if the incoming voltage is too low. Let’s say the incoming voltage is at 200 volts, the output then goes to 224Volts, . When the UPS output reaches let’s say, 230V with the boost mode on, then the UPS sends a command to relay so that the voltage increasing mechanism is turned off.

Voltage regulation is a series of power transformers, it can either be step-up transformers or a step-down transformers.   The UPS senses the incoming voltage and commands a series of relays  to select a different transformer output or “tapping”, as they call it.

An automatic voltage regulator can only work within a limited range. Their “tappings” are at a fixed rate lets say, +10volts. If the UPS have a 12% voltage trimming option and the incoming voltage reaches 270 Volts, it can only trim 12% of that, which will result in 237 Volts.

Voltage regulator transformer can have as many “tappings” as its developer wants, but it makes the unit much heavier, it wastes more energy and generates more heat. It doesn’t matter if the AVR has four “taps” or sixteen taps, it is still very slow for suppressing voltage spikes

Surge suppression is basically made to protect against high energy and fast rising surges or spikes that can be caused by lightning, electric motors being turned on or turned off, etc.

Spikes are essentially fast rising spikes and voltage swells are slow rising and low energy in nature. 
Surge protection is basically comprised of a component called MOV – Metal Oxide Varistor.

An MOV works by diverting spikes to ground. When operating at its nominal voltage, or the mains voltage, the varistor acts like a resistor with its resistance tending to the infinite, so it does not conduct electricity to ground at this state.

When there is a fast surge, it instantaneously reacts (in nanoseconds) by decreasing its internal resistance, allowing the excess energy to flow to ground.

The voltage regulator cannot act as fast as an MOV for suppressing high power and fast rising surges and would not be capable of that because of the nature of a power transformer. High energy surges must be diverted to ground and power transformers do not do that. Compared to the speed of an MOV, the voltage regulator is like a turtle.

MOVs degrade very fast if frequent voltage swell are imposed to it, it gets too hot and it’s internal chemistry degrades. MOVs are made to react fast and come back to it’s initial state very quickly as well, which happens when a power surge occurs. That’s why manufactures of surge protective devices use an MOV that only triggers itself when the voltage is much higher than the mains voltage. If the MOV starts to conduct too early, it will degrade itself very quickly and on all power grids a relatively high number of fast duration swells, do happen

What an MOV doesn’t do…

An MOV does not provide equipment with complete power protection. In particular, a MOV device provides no protection for the connected equipment from sustained over-voltages that may result in damage to that equipment as well as to the protector device.

An  MOV provides no equipment protection from inrush current surges (during equipment start-up), from over current (created by a short circuit), or from voltage sags (also known as a brownout); it neither senses nor affects such events.

Susceptibility of electronic equipment to these other power disturbances is defined by other aspects of the system design, either inside the equipment itself or externally by means of  a circuit which typically consists of a voltage-sensing circuit and a relay for disconnecting the AC input when the voltage reaches a danger threshold. See OVCD).

In nut shell…

The AVR and the surge suppression solve two different problems. They’re complimentary technologies but do  not ensure total power protection.

The AVR can adjust the voltage of the line within a limited range to compensate for the voltage being too high or too low. However, the AVR does not respond quickly enough or have wide enough compensation to handle surges.

Surge protection is capable of putting huge surge voltages into ground very quickly, but won’t adjust the long-term voltage of the line as the AVR does.

Both however are ineffective against sustained high voltages. in neutral open condition , they themselves will need protection.

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Also see:

some facts about over voltage

Over Voltage cut off Device

How to protect your equipments from extreme power fluctuations