"How water hungry are Avocado trees compared to other fruit trees?"
In my yard, I've tried to get away with the least water possible, and I've noticed that deciduous fruit trees like apples and peaches need the least, citrus are intermediate, and avocados need the most.
"What happen if you don't give it enough water? Will it not fruit at all or will the fruit be smaller or less tasty?"
In the town where I grew up, I knew of a couple of avocado trees that were unirrigated. So they lived off of only rainfall, and this is in Southern California where it's dry all summer and only around 18 inches of rain fell there in the winter, on average.
The trees didn't look great. One had only a couple fruit each year and its leaves always looked very stressed in the fall. The other had a dozen or more fruit each year and looked better than some irrigated trees I've seen (maybe even some in my own yard!). But this tree was in a flat area in a vacant lot near a road and probably gathered a lot of extra rain through road runoff. It also had a deep, undisturbed, natural mulch.
So, the fruit were few on both trees, but I must say they always tasted very good.