[I wrote this as a post on The Narrow Path discussion forum, but since it came out pretty good and since I'm lazy, I decided to re-post it here on my blog.]
Throughout the history of Christianity there have been a number of theories of what the atonement was all about. Here, in a nutshell, are some of the primary ones:
Ransom: Sometimes called the Classical atonement theory. This seems to have been the most common view in the early church. It can be found, for example, in the writings of Origen (185-254 AD). The Ransom Theory states that at the fall of Adam and Eve, Satan gained dominion (ownership) over the earth. Mankind became enslaved under Satan. Jesus offered Himself as a ransom to Satan, in exchange for mankind. As Origen wrote: "The payment could not be [made] to God [be]cause God was not holding sinners in captivity for a ransom, so the payment had to be to the devil." Satan believed that by taking Jesus in exchange for mankind, he would gain power over the Father, and so accepted Jesus' offer of ransom. After taking Jesus captive and releasing mankind, Satan discovered that he could not hold Jesus, because He was sinless. As a result, Satan lost everything. Essentially, he had been tricked! C.S. Lewis portrayed the Ransom theory beautifully in The Lion, The Witch and The Wardrobe when Aslan gives himself to the Witch in exchange for Edmund. Some modern-day Christians take this theory even farther, teaching that Jesus descended to Hell and was tormented by Satan and the demons for three days.
Satisfaction: The Satisfaction theory came to the forefront in the Middle Ages and reflects the culture of European Feudalism. It is generally attributed to Anselm of Canterbury, (1033-1109 AD) and is delineated in his book "Cur Deus Homo" ("Why God became man"). In the Satisfaction theory, the "ransom" is paid not to Satan, but to God. Man, by his sin, has offended God. However, man is completely unable to make up for this offense or satisfy God's requirements of holiness. Only Jesus, as the sinless God-Man can compensate the Father for the offenses of mankind. The relation to ancient Jewish ritual sacrifices is clear. Jesus willingly offers Himself as the sacrificial lamb to appease God and provide atonement on behalf of mankind. The picture here is of a feudal serf who has offended the honor of a feudal Lord. The son of the feudal Lord (and thus an equal in the stratified feudal system) steps in and satisfies the offense on behalf of the serf, thus restoring the Father's honor.
Moral Influence: This theory is generally attributed to Peter Abelard in the 12th century, but hints of it can be seen in early Christian writings such as Clement of Rome, The Shepherd of Hermas and the Gospel of Barnabas. In the Moral Influence theory, a payment is not demanded, either to Satan or God. Instead, Jesus' life, death and resurrection serve as a powerful symbol of God's love, compassion and mercy. As we look upon and grasp what God has done, our hearts are softened, we repent, and we are drawn to follow His example.
Penal Substitution: This was the view held by Luther and Calvin. It is really an evolution of Anselm's Satisfaction theory. The "offense of honor" of the Satisfaction view is replaced by a debt of sin. Man, through his sin, has incurred a debt against God that he can never hope to repay. God cannot (or will not) forgive this debt of sin in any way other than the shedding of blood. The emphasis here is on justice. Jesus is fully man but (due to His divine nature) has kept the Law perfectly. As a result, He is the only one who can adequately pay the debt by incurring the penalty. He willingly agrees to do so. Again, we see references to the Hebrew sacrificial system.
Christus Victor: This is the predominant view in the Eastern Orthodox church but the name 'Christus Victor' was coined by the Swedish bishop Gustaf Aulén in his 1931 book by the same name. Christus Victor harkens back to the ancient Ransom theory but instead of Jesus submitting Himself (temporarily) to Satan, Jesus instead battles Satan and the powers of evil and triumphs over them. The result of Jesus' victory is what the Eastern Orthodox church calls theosis: the opportunity for man to become holy and reconciled to God and, ultimately, resurrected like Christ. Roots of the doctrine of theosis go all the way back to Irenaeus' doctrine of recapitulation: that Jesus became what we are so that we can become what He is.
Covenantal: Jesus took upon Himself the penalty for the Jews breaking covenant (a contractual relationship) with God, not as a means of satisfying God but as a way of fulfilling the covenant from both sides. Thus, Jesus becomes the center; the mediator. In the Covenantal theory, justice is defined not in Western terms of quid pro quo but in terms of faithfulness to a relationship. As a result, one's inclusion into God's covenant people is no longer predicated on ethnic identity or the performance of Mosaic Law but entirely upon God's faithfulness.
There are other, less common atonement theories such as the Arbitrary Acceptance theory of Scotus and Ockham, but the ones I've listed are the most prevalent. Sometimes the names given them are slightly different and my thumbnail descriptions leave plenty of room for discrepancy. Most Christians, it seems, haven't examined (or been taught) the various views and so tend to hold bits and pieces of several or shift back and forth from one to another without realizing it.
All of these theories have scripture which seems to support them. All of these theories have their shortcomings as well as their strong points. Each one has been held by brilliant and devout Christians. These various atonement theories have sometimes been compared to windows in a house. From each window you can see a piece of the sky from a certain perspective. None of the windows allows you to see the whole sky however.
Two thousand years ago an astounding event took place. Somehow, though His life, death and resurrection, Jesus took away our sin and reconciled us to God. Theologians have been trying to find language to explain it ever since.