Every time someone tried it using opensource software like AVARICE, (project page) they always into some bugs. Maybe that software has improved now. I’ve tried using a fork in the past because the latest avarice version on sourceforge had compile errors (AVaRICE / Bugs / #31 Cannot compile avarice-2.14.tar.bz2 due to '__unused').
You should check out CLion / Avarice debug not working and Atmega32 debugging with avarice and avr-gdb - #2 by mate910327. The general gist is that you have to get a program to connect to the chip (via the Atmel-ICE JTAG adapter in your case) and start a GDB server. The VSCode debugger can then connect to that (see debug_options).
The very first thing you should do is grab the latest official avarice version (from the SVN, not the release pages, svn checkout https://svn.code.sf.net/p/avarice/code/trunk avarice-code) and compile it, and you should do that under Linux (e.g. standard Ubuntu either native or in VirtualBox virtual machine with the Atmel-ICE USB device passed through) since native Windows (or MinGW) is not supported, only via Cygwin / MSYS2 emulation. Goes like
# to get USB support
sudo apt install libusb-dev
# download source & compile it
wget https://sourceforge.net/code-snapshots/svn/a/av/avarice/code/avarice-code-r392-trunk-avarice.zip
unzip avarice-code-r392-trunk-avarice.zip
cd avarice-code-r392-trunk-avarice
chmod +x Bootstrap
./Bootstrap
./configure
make
sudo make install
# should work
avarice --help
Once you have that working you can try connecting to your chip
avarice --jtag /dev/ttyS10 -P at90can128 -d :4242
(/dev/ttyS10 is the serial port for the Atmel-ICE device), or
avarice --edbg -P at90can128 -d :4242
because
-1, --mkI Connect to JTAG ICE mkI (default)
-2, --mkII Connect to JTAG ICE mkII
-3, --jtag3 Connect to JTAGICE3 (Firmware 2.x)
-4, --edbg Atmel-ICE, or JTAGICE3 (firmware 3.x), or EDBG Integrated Debugger
..
-j, --jtag <devname> Port attached to JTAG box (default: /dev/avrjtag).
And so you can see whether avarice can connect to your chip at all, or if that fails.
EDIT: I’ve just seen that this latest SVN version is also included in Ubuntu LTS 22.04 (see Ubuntu Manpage: avarice - Provides an interface from avr-gdb to Atmel's AVR in-circuit debugging tools and 2.14+svn392-1 : avarice : amd64 : Jammy (22.04) : Ubuntu), so if you use that, you won’t have to compile it yourself as you can just sudo apt install avarice.