Genesis 1:26-28

Creation of Man

26 And God said, Let us make man in our image, after our likeness: and let them have dominion over the fish of the sea, and over the fowl of the air, and over the cattle, and over all the earth, and over every creeping thing that creepeth upon the earth.
27 So God created man in his own image, in the image of God created he him; male and female created he them.
28 And God blessed them, and God said unto them, Be fruitful, and multiply, and replenish the earth, and subdue it: and have dominion over the fish of the sea, and over the fowl of the air, and over every living thing that moveth upon the earth.

And God said for everything created to this point, God set the task by speaking His creation into being, now He is making an announcement.

Let us make man Making man is also distinctively different from previous creature creations.  Until now God said Bring forth, and a host of creatures and variety were created, but man is isolated in creation and dignified with Gods personal touch and a specific announcement.

Taking a brief glance forward to Genesis 2:7 And the LORD God formed man of the dust of the ground, and breathed into his nostrils the breath of life; and man became a living soul.  Above and beyond all other animals God actually depicts the formation of man, and breathes the breath of life into man. 

in our image This is not a physical appearance. We often speak of things that would ruin or taint our image, not meaning it would change our outward appearance, but rather our spiritual or inward appearance.  Man was set apart from all the rest of creation, just as God being Holy, the word Holy meaning to be set apart man likewase was set apart.  Adam was innocent in creation and must have been righteous until his fall because he was not separated from God yet. 

As reference to the term Image as it is used by Paul in the New Testament:
Col 3:8-10  8 But now ye also put off all these; anger, wrath, malice, blasphemy, filthy communication out of your mouth. 9 Lie not one to another, seeing that ye have put off the old man with his deeds; 10 And have put on the new man, which is renewed in knowledge after the image of him that created him:

1 Cor 15:49 And as we have borne the image of the earthy, we shall also bear the image of the heavenly.

2 Cor 3:18 But we all, with open face beholding as in a glass the glory of the Lord, are changed into the same image from glory to glory, even as by the Spirit of the Lord. 

2 Cor 4:4 In whom the god of this world hath blinded the minds of them which believe not, lest the light of the glorious gospel of Christ, who is the image of God, should shine unto them.

These are just a few of the references to the Image of man, but should be enough to give a feeling of the actual meaning of the term.

The Holy Bible : King James Version. 1995 (Ge 1:26). Oak Harbor, WA: Logos Research Systems, Inc.