What does the colloquial "b" mean? Is it a gangland expression?

If you watch The Wire, you'll notice that Stringer calls Avon "B" quite often.

What does it mean? Is it short for "buddy"? When and where did people start using this expression?

There is at least some chance that b originated as a truncation of b-boy, for which Merriam-Webster's Eleventh Collegiate Dictionary (2003) offers the following entry:

B-boy n {b prob. fr. break (solo instrumental passage) or break beat} (1981) : a male who engages in the pursuit of hip-hop culture or adopts its styles

According to J.E. Lighter, Random House Historical Dictionary of American Slang (1993), b-boy started out with a narrower meaning:

b-boy n. {break dance + boy; modeled on B-girl [where the b originally stood for bar]} a male break dancer or (broadly and now usu.) aficionado of rap music.

Another possibility is that it derives from the slang term blood (as in "blood brother" or "person of my blood"). Geneva Smitherman, Black Talk (1994) has this entry for B:

B 1) A form of address for a male or female, though more common for males; probably a shortened form of BLOOD [which Smitherman defines as "A generic term for any person of African descent; a positive term noting the genetic kinship and shared bloodlines of African people"]. "Yo, B, whassup?" Sometimes the initial for the person's first name is substituted for "B." 2) Euphemism for BITCH.

Oddly, Smitherman doesn't include b-boy in her glossary of terms at all. Tom Dalzell, Flappers 2 Rappers: American Youth Slang (1996), in a chapter on hip-hop and rap slang, offers a lengthy list of terms used to greet someone:

"Hello" might be expressed as Ayo, Eh G, Give it up, Hayo, S'up, Wassup? Wassup, Money? or Yo. Male terms of address include ace, B, B-boy, blood, bro, brotha, brother, cat, cuz, dog, dude, G, homeboy, homepeep, home slice, homes, homey, hops, jack, loc, low, ...

Whether b in its current slang sense originated from b-boy or from blood, I wouldn't be at all surprised if the association of b with bro[ther] in the sense of close friend or comrade contributed to the popularity of the emerging one-letter slang term.

Being a slang and probably recent expression traditional dictionaries are not very helpful, I add below information that may be helpful in understanding its usage and where is may come from:

B from UD:

• A greeting to one of your homies
  • What up B what been goin on

B:

• They say that in New York & New Jersey places in that region its one of them words that you can say to any & everybody like where I'm from everybody says "Bro" like "What's up bro?", "I'll see yall later bro", "Call me when you get this message bro" it's basically the same thing but instead of "Bro" he's saying "B".

(Yahoo.answers)