This has been written about so many times on the web that I thought that it did not need writing again. Then I realized that there were so many sites that misunderstand this issue that perhaps its something that should be mentioned on all sites connected with Hinduism.
To most Westerners the term idol implies a false god. Idolatry is defined as “the worship of a physical object as a god” or “immoderate attachment or devotion to something”. Hindus refer to the statues used in worship as murtis, but this term is not understood by westerners.
Unfortunately, many Indians use the term idol when translating murti into English. This is probably because this word was used by the English to denigrate Hinduism, but it was picked up by Indians learning English without them understanding the negative connotations.
The best western word used to describe these statues is icon, meaning a sacred image or representation. A Hindu no more worships a statue than a Christian worships a cross. The statue is a representation of God, not something to be worshipped in itself. Hindus believe that there is one God with many names. God is ultimately the unmanifest Brahman, but can be manifest in many forms. There is an interesting essay about how a westerner came to see the truth about murtis on the Himalayan academy site: Breaking the idol barrier.