Your instructions are in the right direction. First you need to find the version your project is built for. To do this in Eclipse:
From the menu: Project -> Properties, and select "Android" in the left box. This shows what the project is being built for. For example "Android 2.3.3".
Close the dialog.
Next, from the menu: Window -> AVD manager and check that an AVD is available for that version. Likely there is not one that matches, and you'll need to add a new one.
To add a new one, press New... and fill out the new AVD info. You can give it any name, but be sure to select the Target to match the project version.
When done, note the API Level for this newly created AVD. In this example, version 2.3.3 is API level 10.
Confirm your AndroidManifest.xml file also specifies the minimum version that is equal to or below the project. For this example, it would appear as a line, typically after the android:versionName line as:
<uses-sdk android:minSdkVersion="10" />
Any number 10 or below is fine.