This answer will have 2 parts with input by 2 contributors:
Reply Part #1
Obviously, Orthodox Christians do not think that commandment to abstain from idols and idolatry (10 commandments and 3 John for reiteration in the New Testament). This was a very debated subject which was fully settled during the 8th and 9th century. The iconoclastic view is that there should be not portrayal of creatures (especially in the sphere of worship) based on the second commandment. Iconoclasts have sometimes even suggested that the cross is not a permissible object. The consensus of the ancient apostolic Churches (and this includes the Oriental Orthodox but not the “Nestorian” bodies) is that icons are permissible and guidelines have been issued as to was is permissible or not.
The Orthodox view of the matter can be expressed as follows, and it is a convergence of factors: (1) the Old Testament does forbid idolatry and in the context of the commandments of Sinai forbids graven images, but this must be understood in the context where (a) the Israelites are coming out of Egypt which was notorious for idolatry, (b) the Israelites has a great propensity toward this sin as we see in the incident of the Golden Calf and as we will see the Brass Serpent, (c) God informs Moses that the foundation is “you have not seen my form” (Deut 2:32-33). In spite of this prohibition, God does ordain that certain types of graven images be made, not only the Ark and the embroidered curtain with angels, but most notably the Brass Serpent.
The Brass Serpent is critical to help us understand the fundamental difference between icon and idol. This object was ordained by God to serve as icon – and it was in fact an icon of the “Icon of the invisible God” (Col 1:15) who is the Lord Jesus Christ (John 3:14) – and it ended up being misused as an idol (2 Kings 18:4).
The difference between idol and icon is whether the latreia (divine service) is directed to the ultimate source (in Orthodox theology to God the Father) or stops at the person or thing which then becomes an idol. Proskunesis (to express adoration, to offer relative worship) is an act of reverence which can be suitable for things and people other than God, but this depends on the intention and context. Proskunesis is not idolatry if it is offered in a relative sense, with the intention to refer all things to the divine source. For instance, all honor is due to God, but we offer honor to parents and kings / rulers with reference to God who is the source and authority.
The fact is that representations of things, angels and people were used during Old Testament times and in people’s lives. Today, people who refuse the use of religious images are surrounded and surround themselves with all kings of images, and we have the strange situation of ‘iconoclastic Christians’ who have photos of people and animal all around them but nothing to remind them of Christ and the saints!
In the New Testament, the invisible God who could not be seen on Sinai has revealed himself through his Only Begotten Son and Icon, and we worship and honor the Father through the Son – the uncreated perfect icon of the Father, even as the Scriptures command. For this reason, all Christians – even those who reject icons – must admit that they do worship an icon, the Lord Jesus Christ himself. God the Father is in fact the great icon generating God – he eternally begets his co-eternal Son and Word, and in time he has created human beings in the “image (icon in Greek) and likeness of God.”
Once it was established that images could be used (as they had been used even in the Old Testament), the question was that of the proper way to do this, both in terms of subject and treatment. The primary icon, of course, was that of the Lord Jesus Christ who could be portrayed in the flesh. Flat icons were mandated in the Orthodox tradition because it was always felt that statues presented a high risk of leading to a shift for proper veneration to idolatry. The window-pane aspect of the icon and the perspective help Orthodox Christians remember that whatever honor or veneration is given to created things must always be directed beyond to the Holy Trinity and in the most ultimate sense to the Father as Source and Cause.
Just as the book of the Gospel, the Cross, and Christians themselves were to be greeted and honored with a kiss, this was naturally the treatment to be extended to icons of the Lord and of the saints. Indeed, this comes from the Jewish practice of kissing holy objects, in particular the phylacteries, and there is even a major Protestant film based on the Gospel of Luke where the Lord is seen doing this.
In summary, then, the Orthodox bishops gathered in Council wisely determined the theological foundations of “images” and the best pastoral guidance to avoid idolatry. This does not means that Orthodox Christians have always avoided idolatry, but when this did happen it was due to non compliance with the teaching of the Seventh Council.
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Reply Part #2
The issue of iconoclasm was dealt with during the 8th and 9th centuries. The culmination of this struggle was the declaration of faith by the Seventh Ecumenical Council [http://orthodoxwiki.org/Seventh_Ecumenical_Council] which made a Christological argument for the use of icons.
In order to appreciate this, one must understand two words: idolatry and symbol.
Idolatry is the act of placing creation above God (worshipping an object or objects instead of God). In the eyes of Judaism (and the Church), the pagans worshiped golden statues (et.al.), not gods. In our own era, there are still plenty of idolaters, because people place things like money, politics and material wealth above God.
In modern English, the word symbol means a replacement or substitute for something else. In Greek, it derives from a compound verb that literally means “throw together” or “bring together.” In terms of religion, this means the bringing together of the mundane with the divine.
Icons are not idols because they are symbols. Through the grace of God, the paint, wood and varnish of the icon is “thrown together” with the personal presence of Christ and the saints depicted. Thus, when an Orthodox Christian kisses an icon, they are greeting the person depicted in the icon as they would their friends and relatives (Orthodox Christians greet each other with kisses on the cheeks). Thus, icons do not replace God, but aid the Orthodox Christian to give proper worship to God.
Orthodoxy understands icons to be necessary because by insisting on the use of icons, the Orthodox Church insists on the Incarnation of Christ. Jesus was seen, heard and touched. He interacted with world — He ate fish, for example. Prior to the Incarnation, God could not be depicted, because He was invisible and intangible. If we get rid of icons or make them optional, we call into question the Incarnation — God’s invisibility and intangibility would trump the reality of the Incarnation. Orthodoxy avoids this entire line of thinking by insisting that icon are necessary — the Orthodox Church emphatically insists that Christ took on our humanity.