Shiva lingam is the holy symbol of Lord shiva that is considered quite sacred and worshiped with devotion by the devotees. The sanskrit word lingam means symbol, so shiva lingam means symbol of shiva. It is considered the foremost sacred symbol for shaivites and has been worshiped for ages. The puranas like shiva maha puranam discuss about the superiority of linga worship. (1) (The Indus valley excavation is an example for the presence of this worship in olden times.)
Once the god of creation brahma and the god of protection Maha Vishnu entered in an argument on deciding who is greater. When those two great gods were fighting between themselves, the Greatest of all Lord Shiva who is formless and transcends everything appeared as a pillar of flame. God told Brahma and Vishnu that whoever finds the head or the foot of His flame form would be considered greater. Brahma took the form of swan ( hansam ) and set out to reach the top of the Fire. Vishnu became a wild pig to see the foot of the Fire. Where are the limits for the infinite God ? They could not succeed in spite of their heavy effort. They realized their mistake and the peerless greatness of Lord Shiva. The God who can never be reached by ego appears as the form of love to those who surrender to Him. Lord shiva appeared in the form of Shiva lingam (which is the shape of flame) for their benefit. They worshiped that oldest form of Him and got blessed. The God who came to bless them from the Flame, from the lingam is known as lingodbhava (2). This incident is depicted in Shiva Maha Puranam (1) and many other scriptures.
As the God stood as pillar of flame, the natural adornment for the Lord is Holy Ash. (As ash would be found on the surface of the fire). As the God stood as the Flame that stood up the shiva sahasranama hails God as Urdva retas and the shiva ashtottara as hiranya retas. The hymn that starts nidhana pataye namah, refers to many similarities of Flame and shivalinga.