Lady of Avalon by Marion Zimmer Bradley is a compilation of three novellas, each set in a different time period, and each with a different High Priestess or "Lady" of Avalon. Part one is a direct sequel to The Forest House and tells the story of how the protective mists that separate Avalon from the surrounding land were put in place by Caillean. Part two is about a priestess named Teleri who is compelled to marry a man she does not love in order to tie him to Avalon to ensure the safety of Britain. Part three is a direct prequel to The Mists of Avalon and is the story of Viviane's childhood and training on Avalon and the events that led to her becoming High Priestess of Avalon. Although these are three separate stories, they all contain similar themes which tie them together. I rather enjoyed the first and third parts, but part two I found more tedious and didn't really feel it added much to the series as a whole except to provide some context for certain events that happened in the book Priestess of Avalon. Overall I'd really recommend this book to fans of the Avalon series as it provides some really good background story to The Mists of Avalon.
This book should be read after The Forest House(and Ravens of Avalon before that) and before Mists of Avalon. There are also references to The Fall of Atlantis and Ancestors of Avalon but it is less important that you read these books first. The book Priestess of Avalon overlaps both chronologically and in plot with part two of this book. There are many options for the order in which to read the two books. You could simply read Lady of Avalon first and then Priestess of Avalon second or vice-versa. You could read Priestess of Avalon anytime after the first part of Lady of Avalon, but make sure you finish reading it before you start part three of Lady of Avalon. My preferred method is a bit more complicated though. First read part one of Lady of Avalon. Second read part one of Priestess of Avalon and up to chapter 11 of part two. Third read part two of Lady of Avalon. Forth finish parts two and three of Priestess of Avalon, and then finally read part three of Lady of Avalon.