SQL Server 2012 Availability Group is it "AlwaysON"? In a traditional SQL Server cluster when failover occurs, all clients that are connected to the SQL Server failed instance lose connections and each client must re-establish a new connection to failover cluster instance.

Does AlwaysON Availability Group mitigate this problem? Is failover in case of SQL Server 2012 AlwaysON availability group transparent to clients connecting to the SQL Server?
No.  During a failover, clients will notice.  Your connection to the SQL Server will be broken, and you'll have to retry your transaction.