"The most difficult concept to grasp in all the Bible is the interaction between Law and grace." That's what I used to tell everyone. We grow up learning the Ten Commandments. We are taught that rules are very important; we were always expected to obey some rules, no matter where we were. But then we learn the Gospel. We hear about God's grace. We are taught that Jesus saved us from our sins and that salvation is not of works, but of faith.
What about the Law then? What about those Ten Commandments? Do I still have to follow them? Some places in the Bible call one of the Commandments into question. Romans 14 and Colossians 2 seem to indicate that obedience to the Sabbath command is a matter of personal conviction. But then other New Testament passages make it seem like if I don't follow God's commands, I will end up forfeiting my place in the Kingdom of God (Galatians 5:17-21, Colossians 3:5-6). How are we supposed to navigate this difficult terrain?
Some Bible teachers foolishly simplify the issue: "We're no longer under Law, but under grace!" they exclaim, citing Romans 6:14 or Galatians 3. By taking those words out of context, these teachers have created generations of antinomians (those who subscribe to no law) and worse: legalists (those who subscribe to their own law), to which I belonged.
The key to understanding Law and grace is not to arbitrarily decide which things are good for Christians to do and which are not. This just leads us to become the same as the Pharisees, and certainly this has happened. Many churches have replaced God's commands with their own: "Don't drink", "Don't smoke", "Don't gamble", and "Don't dance". But when it comes to what God has commanded (the very things that Jesus in the Great Commission told us to teach - Matthew 28:18-20); in those things they will say, "We are not under Law but under grace." No, the key to understanding Law and grace is to recognize the order and the function of each.
The Exodus is a great example of the place of Law and grace in God's people. God did not first give the Israelites a Law and then promise to free them from Egypt if they obeyed. To the contrary, He broke them out of their slavery first and then gave them the Law. This is the same order with the Christian: God saves us quite apart from our own righteousness, and then commands us how to live. Therefore, our salvation is not of the Law, but of grace. We are, however, then expected to obey God's revealed will for our lives (His commands) in order to please Him and glorify Him before men (Matthew 5:16).
Also, to clarify these issues of Law and grace, we also need to understand the role of Law in society. Christians frequently have a hard time looking at the Old Testament Law and thinking that it has to do with them because so much of it is to be enforced by the government. This is the other key: much of God's Law is to be obeyed by the state. We look at commands that say things like, "You shall not permit a witch to live" (Exodus 22:18) and we know that we are not supposed to go out killing witches, so we think that the Old Testament Law is no longer applicable. That command is not for individual Christians (although it does teach individual Christians not to dabble in sorcery), it is for the government. The nation/state is supposed to wield the sword of God's justice in punishing unrighteousness (Romans 13:4).
Armed with a proper understanding of God's Law, it does indeed become a "Law of Liberty" as James 1:25 calls it, because it frees us from wondering if what we are doing is right or wrong. Truth is always what sets us free, not cloudy confusion. So the Christian knows he has the freedom to dance or to enjoy God's gift of wine without becoming drunk because the Law never speaks against those things. And to break the Law by killing or committing adultery is to go right back into slavery to sin, destroying our freedom. The Law is a very good thing. That's why so many of the Psalms praise it (19 and 119 especially), and that's why Moses can say of it in Deuteronomy 4:5-8,
See, I have taught you statutes and rules, as the LORD my God commanded me, that you should do them in the land that you are entering to take possession of it. Keep them and do them, for that will be your wisdom and your understanding in the sight of the peoples, who, when they hear all these statutes, will say, 'Surely this great nation is a wise and understanding people.' For what great nation is there that has a god so near to it as the LORD our God is to us, whenever we call upon him? And what great nation is there, that has statutes and rules so righteous as all this law that I set before you today?