This is one of the many forms of Avalokiteshvara comprising 108 as depicted in the Kanak Chaitya Mahavihara of Kathmandu.
He manifests in many forms in order to help sentient beings. His 1000 arms form is described as follows
His body is white. He has 1000 arms and 1000 eyes. However, his original 2 hands and 2 eyes are not included. Out of 1000 arms of Avalokiteshvara, 38 arms of this Lokeshvara are depicted with various symbols of emblems. Sometimes he is depicted with emblems with 8 arms only carrying rosary, disc, varada mudra and jewel with his right hand and lotus, bow, vase and clapping ratna with his left hands. He wears an antelope skin on his shoulders symbolizing compassionate nature. He wears all the Bodhisattva ornaments like earrings and so on. He has 11 heads. The 11 heads being his spiritual sire Buddha Amitaba. It is said that Bodhisattva Avalokiteshwara made the commitment in front of Buddha Amitabha to intentionally manifest into the 3 realms of samsara in order to liberate all sentient beings from samsara and to be their supreme guide. He also vowed if by chance his compassion and courageous mind of mercy for sentient beings were to decrease, then let his head and body just completely crack and fall into 1000 pieces. Receiving blessings from Buddha Amitabha Avalokiteshvara went through universal manifestations into the 3 realms of samsara. Thereby he went to hell and emancipated them from both the hot and cold hells by teaching Om Mane Pad me Hung. He in turn went to ghost realm, human, Asura and Deva realms to free the sentient beings from their respective sufferings. He absolutely emptied the ocean of suffering. Following which he went back to Buddha Amitabha and declared that the liberation had been effective. Buddha Amitabha said to him, “You should look again, look back again and again into the world.” And as he did, there he saw once again that sentient beings were in samsara and in sorrow. He became as disappointed as he saw the sight and then his enlightened thought (Bodhicitta) decrease into the moment and he lost his courage. He became disappointed in the very presence of Buddha Amitabha. He felt how the time could come to liberate all sentient beings for ever from this type of condition. And instantly, when his mind felt with sorrow, his body and head just cracked and fell apart into one thousand pieces and then he fainted.
Avalokiteshvara thus fainted and Buddha Amitabha said to him, “My son where has your courage, your mental strength gone?” He picked up all the pieces of his body and his head. At the same time he said, “This happened because of your prayer. You deserve praise of all Buddhas since your prayer was efficacious. However, noble son! Don’t worry.” Thereby he blessed his broken heads in 11 faces and he sat upon those heads, and his broken body into one thousand hands like one thousand petals of the lotus. Thereafter he said, “I bow to you because your thousand heads are the heads of the thousand universal emperors and those eyes in each of the palms of the hands are eyes of one thousand Buddhas who will appear in this fortunate aeon. After that Avilokiteshvara appeared in many different forms in order to tame the suffering sentient beings and he successfully accomplished many events.
The image of 1000 armed Avalokiteshvara in stones is rare in Kathmandu valley. The bronze images can be seen here and there. Basically, a system of fasting ceremony nyune from Tibet came to Kathmandu too, through Tibetan Buddhist masters. In this fasting ceremony, the practice or sadhana is usually devoted to this form of Avalokiteshvara.
Thousand armed Avalokiteshvara form of image can be found in China too. A giant image of thousand armed Avalokiteshvara (360 cms) is installed in the Maitriya temple in Tainan. It was carved out of wood and has aesthetical value.