The data is a digitized waveform. So it's one sweep of the input waveform at a sample rate that will produce 10,000 values for a given sweep time. The set of points following averaging will need to be the same waveform.
The requirement to average adjacent points came from systems engineering. I don't know that there is an explicit desire to smooth the waveform, but I'd rather not try to change that requirement to sampling or anything.
Why 1023? Nothing really to do with the problem, it's an artifact of the control system. There are 10 bits in a control word set aside for requesting X number of points from the waveform. Maximum is the full waveform, so all 10 bits set. That's 3FF hex, or 1023 decimal.