Continuing with the Solas of the Reformation, we come to Sola Fide or Justification by Faith Alone. Martin Luther argued this was the article upon which the Church stands or falls. The New Testament speaks of salvation in multiple ways. For example we encounter terms like adoption, justification, sanctification, election, and union and they all touch on the question of salvation and our relationship with God. Luther and the other Reformers tended to put justification at the front of the line, making its 'legal declaration of righteousness' the central and most critical aspect of our standing with God. The righteousness in question is that of Christ - His righteousness is applied to us. We are justified. How is this accomplished? Through various works? No, by faith alone.
Roman Catholicism had always accepted the notion of salvation being by faith, but by adding the term 'alone' - works were excluded, and that's where Rome took exception. Because under the system it developed over the centuries, salvation is attained by faith and by means of a sacramental system connected to a priesthood, altar, and so forth. In addition, Rome has an expansive system of merit held by the saints that is applied to believers by means of ritual. And worse, Catholics believe that we must pay (at least in part) for our own sins in purgatory. Christ makes salvation possible, but we have to be made righteous by various struggles and the utilization of Church rites and rituals. The Reformers rejected this and argued such teachings destroyed the gospel of grace. They argued we are saved by faith alone.
But at this point we must ask - what are works? And what role do they play? Ephesians 2 tells us we are saved by grace through faith unto good works. Works are essential but they do not save. They do not make us righteous. It's not as if we're keeping score and we have to attain a minimum amount. As is so often the case (and so it is with works) it's not about quantity but quality. The works testify to our faith and its reality.
Sola Fide has led many Christians to downplay the importance of living a holy life and striving unto righteousness. But the New Testament makes it abundantly clear that without holiness no one shall see the Lord (Heb. 12:14), and of course the statements made by James (2:24) continue to spawn debate.
Some Christians have also downplayed the role of the sacraments, arguing that if we're saved by faith alone, then how could something like the waters of baptism or the communion elements play a role in our Christian growth or even in our salvation? Ironically this was not an issue for the Lutherans or (historically) for the Reformed. God employs means, and our faith is strengthened by these God-ordained rites. A strong Scriptural case can be made that the Holy Spirit works through them.
And so we must then ask - what is saving faith? It's not so easy and ironically there's a great deal of disagreement, even to this day. Historically saving faith was understood as not just knowledge of the facts and assent to them - but fiducia (or trust). This concept ties in with Christ's exhortations to abide in Him (John 15:1-7) and it certainly suggests a living, persevering belief and conviction which is also characterized by a life of repentance. Others think this smacks of works. Twentieth century Evangelicalism typified by Billy Graham and others reduced saving faith to mere knowledge and assent (sometimes even making repentance optional) - and often connected to a one-time event. Their critics said this faith is not saving faith as even the demons possess and assent to such knowledge. Salvation is by faith alone. It's very simple, but we err if we simply take it for granted or treat it lightly.