I am currently working on my NANC certification for Biblical Counseling and part of the process is a exam on Theology. I wanted to share this answer I have written as I am often asked by people this very question "how is it that the Bible is inspired." This is one of the most fundamental doctrines because all other doctrines hang upon whether the Bible is truly God's word.Q. The Bible is spoken of as “inspired.” What does this mean?
A. Inspiration in reference to the Bible points to the truth that the Bible's authorship is ultimately from God. The Bible from beginning to end, claims to be the inspired word of God, the revelation of His will to man. Paul wrote to Timothy, “All Scripture is breathed out by God and profitable for teaching, for reproof, for correction, and for training in righteousness,” (2 Timothy 3:16). The word “inspiration” literally means “breathed into by God,” or “God breathed.” This means that the Holy Spirit exercised a supernatural influence over the Bible writers so that they would communicate to man exactly what God wanted communicated to him. Because of this, the Bible writers wrote without error in all areas, including morality, history, and science. Bible inspiration is not be limited to one area, such as morality or doctrine.
The Bible writers
were conscious that they were not speaking of their own accord, but were speaking for God. Peter wrote, “knowing this first of all, that no prophecy of Scripture comes from someone's own interpretation. For no prophecy was ever produced by the will of man, but men spoke from God as they were carried along by the Holy Spirit.” (2 Peter 1:20-21). Samuel said, “The Spirit of the Lord speaks by me; his word is on my tongue.” (2 Samuel 23:2). Jeremiah said, “Then the Lord put out his hand and touched my mouth. And the Lord said to me, “Behold, I have put my words in your mouth.” (Jeremiah 1:9). Thus the writers claim plenary (full), verbal (the actual words) inspiration. They spoke the very word that God commanded.Jesus spoke of the written word when He said, “Do not think that I have come to abolish the Law or the Prophets; I have not come to abolish them but to fulfill them. For truly, I say to you, until heaven and earth pass away, not an iota, not a dot, will pass from the Law until all is accomplished.” (Matthew 5:17-18). Jesus indicated that even the smallest parts of the letters of the written word had to be fulfilled. Jesus could not have made such a statement if He had not understood that God inspired the very words of scripture, not just general thoughts.
God did not just dictate the words of scripture to the Bible writers, however. Each writer under inspiration used his own vocabulary and style of writing. Thus Luke, a physician, used medical terms in his account of the ministry of Christ. Inspiration allowed each writer to avoid error, even as he used his own vocabulary and style. This did not make the writers incapable of sinning, but simply protected them from error in what they wrote and taught. Even as an apostle, Peter erred in his treatment of his Gentile brethren (Galatians 2:11-14). The epistles of Peter are still inspired and authoritative, however.
Enemies of Scripture have claimed the Bible is full of errors, but the Bible has stood the test of time, and no one has ever been able to document any contradiction between the Bible and known fact. This is because the Bible is not the product of human reason, but of the inspiration of God.
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Now why we are on the subject I want to share with everyone an new Study Bible forthcoming that I am very excited about. The English Standard Version Study Bible will come available October 15, 2008. This is a translation that I have come to love, and the team who are contributing to the study bible are top notch theologians and pastors. I encourage everyone to check it out, and if you pre-order now you can get a substantial discount at amazon.com. And for anyone feeling extremely generous this is on my wish list (the Uber-Study-Bible). 
