> Why does this happen?

A blend of anonymity, low self-soothing ability, human instinct to talk trash during competition, people tying identity to performance, skew towards younger people playing, etc.

> How and to what degree does it manifest?

How? Mostly through voice and chat systems in-game. Also through quitting the game, or blatantly "throwing" a match.

To what degree? From "You suck" to racial slurs to harm yourself. It's ubiquitous across competitive games -- you'll probably experience it every session.

> How do you avoid it?

The best way is to find a consistent group of folks to play with. Stay away from "random queue". Certain games you can turn off chat features, submit reports, etc. You can also just ignore it and accept it as part of the thing.

I'd like to answer on the handling part. Handling it really depends on the game / community itself. I play Rainbow 6 Siege online, it's 10 people per match, in two teams. Most toxicity is easily avoided, because I only allow chat and voice from teammates (default setting), and if someone is toxic, it's very easy to block their chat, or voice. Killing teammates only succeeds once, then the TK-er's friendly fire will actually hurt the player itself, not the teammate, and this, if repeated, even propagates from match to match. This status is reflected with a red marker for everyone to see in a match. There's also a ticker on the top right where they sometimes show the names of a bunch of cheaters, griefers, or other toxic elements, after banning their accounts.

I wouldn't even restrict the toxicity conversation to gaming, or to online communities even. Whenever people interact, there can be toxicity. The main factor is usually the interaction setup itself. If that is handled well, the effects of toxic actors is manageably minimal. If the system lets them proliferate, they will. Gaming the system's toxicity management behavior is also a sport in itself. Communities can be even set up to explicitly allow the behavior, acknowledging the existence of this pursuit and making it plain to see that it will happen.

If you want to avoid toxic behavior in your game, don’t allow multiplayer.

Some people will always be shitty, some people will want to play your game, and some number of people will meet both those criteria. The only way to fix it is after the fact, but there’s no way to avoid it.

As to the “how and to what degree” depends on the game and the type of person it attracts. The second something is competitive, toxicity is inevitable because many people take losing personally.

Even playing bridge (card game) with random people online can be pretty grim, though playing online games organised by some national authority (eg the English Bridge Union) is a lot better.