Accordingly, humanity is unique among all God’s creations, having both a material body and an immaterial soul/spirit.
Having the "image" or "likeness" of God means, in the simplest terms, that we were made to resemble God. Adam did not resemble God in the sense of God’s having flesh and blood. Scripture says that "God is spirit" (John 4:24) and therefore exists without a body. However, Adam’s body did mirror the life of God insofar as it was created in perfect health and was not subject to death.
The image of God (Latin: imago dei) refers to the immaterial part of humanity. It sets human beings apart from the animal world, fits them for the dominion God intended them to have over the earth (Genesis 1:28), and enables them to commune with their Maker. It is a likeness mentally, morally, and socially.
Mentally, humanity was created as a rational, volitional agent. In other words, human beings can reason and choose. This is a reflection of God’s intellect and freedom. Anytime someone invents a machine, writes a book, paints a landscape, enjoys a symphony, calculates a sum, or names a pet, he or she is proclaiming the fact that we are made in God’s image.
Morally, humanity was created in righteousness and perfect innocence, a reflection of God’s holiness. God saw all He had made (humanity included) and called it "very good" (Genesis 1:31). Our conscience or "moral compass" is a vestige of that original state. Whenever someone writes a law, recoils from evil, praises good behavior, or feels guilty, he or she is confirming the fact that we are made in God’s own image.
Socially, humanity was created for fellowship. This reflects God's triune nature and His love. In Eden, humanity’s primary relationship was with God (Genesis 3:8 implies fellowship with God), and God made the first woman because "it is not good for the man to be alone" (Genesis 2:18). Every time someone marries, makes a friend, hugs a child, or attends church, he or she is demonstrating the fact that we are made in the likeness of God.
Part of being made in God’s image is that Adam had the capacity to make free choices. Although they were given a righteous nature, Adam and Eve made an evil choice to rebel against their Creator. In so doing, they marred the image of God within themselves, and passed that damaged likeness on to all of their descendants (Romans 5:12). Today, we still bear the image of God (James 3:9), but we also bear the scars of sin. Mentally, morally, socially, and physically, we show the effects of sin.
The good news is that when God redeems an individual, He begins to restore the original image of God, creating a "new self, created to be like God in true righteousness and holiness" (Ephesians 4:24). That redemption is only available by God’s grace through faith in Jesus Christ as our Savior from the sin that separates us from God (Ephesians 2:8-9). Through Christ, we are made new creations in the likeness of God (2 Corinthians 5:17).
Also see: "What It Means to Be “Made in the Image of God”