Icon Menu
Problem
Users need so make a selection out of a limited set of items
Solution
Allow users to select a menu item by selecting an image and display the label in a fixed location.

From
www.apple.com
Use when
The space for the menu is limited or when icons can be used effectively.
How

The icons are lined-up or placed into a convenient configuration (e.g. 3 by 3 or next to each other). Users can move the focus or mouse-pointer over these icons. The icon that is selected will be visually shown distinct from the others. while an icon is selected the label is shown in the 'label-area' which is usually above or below the icons.
Why
This type of menu emphasizes icons while it is at the same time very compact. Especially in special circumstances with limited screen-space, e.g. mobile phone menus, this can create very effective menus.
More Examples
The SonyEricsson T68 uses an image menu as the main phone menu. The users can use a mini-joystick to select a menu item. The 3 by 3 arrangement corresponds with the keypad arrangement (the 1-9 keys) which work as shortcuts for the menu items.
Example of www.NPK.nl
The screenshot is a good example how it should not be done.
The text-navigation is too prominent and the icons have no label. They are so seamlessly integrated that it nearly appears to be a part of the design.
In my opinion its ok to use icons and small images for navigational content as long as the labels are always visible. Icons form a part of the experience instead of beÃÂÃÂÃÂÃÂÃÂÃÂÃÂïng the content. Text is far easier to scan then a graphic so users can find their way much faster in a text based navigation then using icons.
An additional thing to consider is that icons as navigation (as represented above) are most effective for applications where the user will interact with the system many times. In that repetition, users will learn the shorthand for the icons. In situations where the user may only interact with the system on a limited basis (vanity and marketing sites), icons should be accompanied by visible text for better usability.