Some create false dichotomies of faith and works. One HUGE misunderstanding concerns merit. Protestants and Catholics agree that no amount of good works will make us worthy of salvation. We do not merit salvation. Many Protestants, however, take this a step further. Since no work can merit salvation many (but not all) Protestants disregard the importance of works all together.
Another big confusion concerns good works and works of the law. Many fundamentalists and evangelicals fail to notice the difference between the two. Works of the law were never meant to merit salvation. They were meant to prove that it is impossible to merit salvation. Salvation in the Old Covenant and the New is based on faith. Abraham was commended for his faith. Rahab, who wasn’t even Jewish was saved for her faith. Works of the law were never a means to salvation. Good works are important to salvation. Notice that Abraham and Rahab did something with their faith. They had more than an intellectual faith, a simple belief in God. They put their faith to work.
Some who understand the difference between good works and works of the law believe that good works naturally come from faith. However, this is contrary to the many times in Scripture that Christians are warned to do good and not evil or risk their souls.
A great book on faith and works is Not By Faith Alone by Robert Sungenis. It’s alot of material and extensive but it is not verbose. I’ve read it three or four times and still don’t have it all down pat, but he lays it out there.
Personally, I think 1 John 3:23-24 sums it up nicely:
23 And this is his commandment, that we should believe in the name of his Son Jesus Christ and love one another, just as he has commanded us. 24 All who keep his commandments abide in him, and he in them. And by this we know that he abides in us, by the Spirit which he has given.