During the Hundred Year War, a neighboring Fire Nation Army factory began polluting the Jang Hui River with its sludge-like waste. This resulted in vast ecological damage to the surrounding area including the fish, causing them to mutate and grow two heads.
Despite these changes, Xu still continued to sell these fish along with other mutated wildlife. One of these creatures were presented to Team Avatar. Sokka promptly chose it over the non-mutated variety, remarking to the rest of the disgusted team that they would get more for their money that way.
Two-headed fish such as this are the essential ingredients in the "two-headed fish soup", a Southern Water Tribe specialty.
↑From older Avatar: The Last Airbender official site, originally on Nick.com (link). No longer updated.