Okay, so @sheinthatfandom read my tags and I will glomp onto any excuse to do wacky meta analysis, because I’m a nerd, so...
WHY THIS CONVERSATION IS AN INDICATION THAT THE AVATAR WORLD IS SET SOMEWHERE INTO THE FAR-FLUNG FUTURE OF OUR WORLD: A WILD MASS GUESS THEORY, BY ME
If you watch Legend of Korra, you see a whole long story about the origins of the Avatar cycle and get to meet Wan, the first Avatar. In the backstory we learn that the spirits living in the physical world is only possible because Vaatu allowed them to do so. We also see some instances of spirits possessing physical creatures and then leaving without killing the creature, but leaving them fundamentally altered, by adding elements of some other living thing.
Fast forward to this conversation with the Gaang. Aside from being funny, we see the kids recognizing in each of the animals they bring up the “bear” elements of that animal, and differentiating those elements from the “platypus,” “skunk,” “armadillo,” and “gopher” bits. And able to piece out what a “pure” bear would be and recognize that Bosco is one when they see him. We see an example of a “pure” cat in Myuki at the Herbalist’s house in “The Blue Spirit.” But the kids have no trouble recognizing that as different from an owl cat. Or picking out which bits are different or common between armadillo lions, lion turtles, and turtle ducks.
Therefore, we can see that the concept of “just a turtle” or “just an armadillo” or “just a lion” has persisted at least enough that people recognize all those elements as belonging to a turtle as a concept, even if, as Toph they’re more comfortable with them as belonging to a mix-and-match animal. That concept of what “just a turtle” is has to come from somewhere, and I submit that it came from...turtles. That the world Vaatu let the spirits into is meant to be this world, and that his doing so is so catastrophic and disruptive that the result it drives this world to is what we see in Korra’s flashback: humanity living on lion turtles and barely hanging on.
QED, Avatar posits a fictional future of our current world.