In what way is Scripture the "Word of God"?

Most Christians agree that the Bible is inspired by God and therefore is the Word of God. However, there is disagreement as to whether or not viewing the Bible as inspired necessitates viewing it as inerrant (without error of any kind). This is a huge topic with many twists and turns. For a helpful analysis, see a post on Roger Olson's blog titled How Do I Know the Bible is God's Word?

Olson prefers to refer to the Bible as being infallible rather than inerrant. In explaining, he offers Emil Brunner's illustration of the old RCA logo, which featured a dog listening intently to a Victrola record player. The caption reads, "His master’s voice.” In like manner, Olson views the Bible as infallibly conveying "our Master's true voice" on matters concerning faith and life (the issues which, for Olson, are the focus of Scripture). In GCI, we take a similar viewpoint in our statement of beliefs concerning Scripture.

In thinking through these issues, I find very helpful the perspective on Scripture articulated by T.F. Torrance in Reality and Evangelical Theology. T.F takes to task the idea of an inerrant Bible - an idea he says is flawed because it flows from...
"...An epistemological dualism...[that] cuts off the revelation of God in the Bible from God himself and his continuous self-giving through Christ and in the Spirit, so that the Bible is treated as a self-contained corpus of divine truths in propositional form...[a] rigid framework of belief within which fundamentalism barricades itself" (p. 17; 1982 edition throughout, emphasis added).
T.F. is not objecting to holding a high view of Scripture - he did so throughout his career. However, he does object to ascribing to Scripture, "primacy over God's self-revelation, which is mediated to us through the Bible."  To T.F., we err when we revere Scripture in such a way that it begins to stand above (or even substitute for) God's self-revelation in the person of Jesus Christ. To insist that the Bible is inerrant tends in this unfortunate direction.

That being said, it is right that we ascribe to the Bible a place of great prominence as God's inspired gift, through which he reveals to us the person and work of Jesus Christ, who is uniquely and fully God's Living Word. According to Torrance...
"This means that our interpretation and understanding of the Bible cannot be established or defended simply by appealing to biblical texts or passages or even biblical concepts, but only through listening to the truths they signify or attest and allowing our minds to be objectively determined by them. That is to say, biblical statements are to be treated, not as containing or embodying the Truth of God in themselves, but as pointing, under the leading of the Spirit of Truth, to Jesus Christ himself who is the Truth" (p. 119)... Biblical statements...point above and beyond themselves to the inexhaustible Truth of God. A faithful interpretation of biblical statements, therefore, will not cut short their transcendent reference but will seek to allow their implications to disclose themselves in the light of that reference" (p144). 
We thus read Scripture in the light of the Living Word of God, Jesus Christ, the inerrant One. When we do, we receive through the Spirit of God a faithful, inspired witness to the one who is for us and with us the Truth, the Way and the Life.