Mark is basically correct but let's get more specific.
Standard Cost -- YOU set a standard cost for each item. This is a projected average of what you expect each item to cost over the next few months. Most companies revise standard cost every 6 months, a few more frequently, some once a year. When you actually purchase or manufacture an item, the difference between the real cost and the standard is written to a set of Variance Accounts. The item is debited to inventory assets at the establihed Standard Cost. When the item is consumed (sold, used, scrapped) it is always consumed at standard. If the standard cost is changed, you must make sure that an entry is made to a standard cost revaluation account for the value of the changes.
There are actually 5 valuation methods in GP, two of which are Standard but use LIFO or FIFO. LIFO/FIFO Perpetual is a form of average costing that add items to inventory at the cost purchased. And builds a stack. Items are removed close to the cost received, depending on the selection of FIFO or LIFO.
Average actually adds the cost of the quantity received to the cost of the quantity on hand and divides by the total quantity after the receipt to calculate a Current Cost.
Now, this is actually an abreviated discussion. We have a book, Managing Inventory, that explains these valuation methods in much more detail. Check it out on our web site.