AVG Identity Protection is an anti-malware product that will protect you from all kinds of malware like Spyware, Bots, Identity Theft using behavioral technologies. It also provides zero day protection for new viruses. Identity Protection verifies the behavior of applications and if there is suspicious action detected (this means e.g. when file copies itself to system folder, writes data into another files and creates registry entries, gathers important data and saves them to a specific file or uploads them to the Internet...), you will get notified. Identity Protection can detect malware without any database updates and therefore may provide better protection than anti-virus applications in specific cases (when blocking newly spreading malware).
On the other hand, IDP will not be able to detect infected file that is only present in your computer and does not perform any actions (e.g. is only stored and not running at all). Such file must be detected and healed by Anti-Virus scan.
AntiVirus product will protect you from known viruses using signature mechanism or basic heuristic analysis. Most of them are scan based and will scan your computer for any known threats coming to your computer.
We strongly recommend you have the both products installed, in order to have complete protection for your PC.