Why do you look so much better than me

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The default avatars have very low-resolution "standard" skins, and the regular Linden hair is basic. The very creative Resident artists have launched special, high-resolution skins to offset the "standard" ones, and you can build very complex hair using primitive objects (basically by twisting around cylinders and parts of spheres or rings and torii so that they "look" like better hairstyles). Some are even flexible prims!

Also, clothes by better designers are usually found outside the "freebie" spots.

All these are often expensive (since they require much work to do) and sold on many shops around the grid. Just go to Search > Places and search for "clothes", "skin" or "hair" to see what is available.