The show didn't go into much detail about this, but from the clip showing the giant Aang in the Avatar State falling over makes me believe that Aang was killed, or atleast his body was split from his spirit or something along those lines. Then, Katara revived him with her healing powers, amplified by the water from the Spirit Oasis.

Why is this significant?

1. If Aang died while he was semi-Avatar state, maybe that means the Avatar cycle is broken, making him truly the last Airbender (Airbenders other then him are all dead and no more Avatars will airbend). However, I think Aang would still have his powers because he is now alive, but will be unable to go into the Avatar state.

2. Aang never fully gave up his feelings for Katara. He was in the process of it and Azula zapped him, ending the transformation. Even if Aang did not die, the process of him giving up Katara and gaining control over the Avatar State was not completed.

Well first off he didn't die, but we're not sure on Katara.

mmmoooooolllllllldddddddd

he has to still be the avatar because there wouldn't be a show otherwise, and remember when he was healed his arrows glowed, and that the past experience of all the other avatars

I mean he's still the Avatar but can no longer enter the Avatar state.

It's been 100% confirmed that Aang died and Katara resurrected him. Just ask pooldude, he has inside sources that work on the show and they told him this, and he also found out that the third episode of season 3 is gonna be called "Sokka's Master."