The avatar spirit perhaps appeared first when people moved on from Energybending to bending the 4 elements. It's likely that the 4 nations did not exist then and there was only one nation earlier. It's not too much of a stretch to assume that just as Aang and Zuko decided to create Republic City as a melting pot for all benders and non-benders to live in balance, the first few avatars split the world into 4 nations based on the 4 elements. It's likely that since the Avatar has been reincarnating for almost a thousand lifetimes (or more), human society is hundreds of thousands of years old - the old paradigm of separating different people of different elements and cultures makes real sense then.