Android - AVG by DroidSecurity - legit? Useful?

I have no experience with this specific app, however here's my two cents on the second half of your question.

The Android security model is very well thought out. Android runs on the Linux kernel (a modified version) and sandboxes every app through a variety of measures, including running each under a different user account. The biggest legitimate threat you have is installing malicious apps. Most likely these will be trojans that ask for reasonable permissions (reading your SD card, communicating with the network) and use them for nefarious purposes.

If I remember correctly, the malware prevention portion of AVG works by scanning apps before you install them, much like desktop virus scans work. This is a reasonable way of protecting you, malicious apps can be added to a database and you are warned if anything you download (from either the internet or the Market) is known to be Bad. The only catch is that Google usually removes illegal and malicious app from the Play Store within a few days of it becoming available. (I have nothing but anecdotal evidence to back that claim up though)

So if you're installing a lot of apps from sources other than the Play Store, or you don't trust Google to quickly catch malicious apps, installing an anti-virus is probably a good bet.