The True Meaning of 'Laa ilaaha illallaah'
It is a declaration (kalimah) that the Muslims proclaim in their daily lives; in their call to prayer (adhaan), their call to establishing the prayer (iqaamah), their sermons and their speeches. It is:
"A declaration upon which the heavens and the earth are established, and for which the whole of creation was created, and for which Allaah sent Messengers, revealed Books, and prescribed Divine Laws. Because of it the scales and the registers were set up, as were Paradise and HellFire. Due to it, the creation was divided into Believers and unbelievers, righteous and wicked. It is the root cause for there being creation, command, rewards and punishments. It is the right for which the creation was created and about it and its rights will they be questioned and brought to account. Because of it there is punishment and reward, due to it the direction of prayer (qiblah) was set up, upon it rests the very foundation of the religion, and it is the right of Allaah over His slaves. The declaration of Islaam and the key to Paradise. About it, both the earlier and later people will be questioned. Indeed, no person will stand before Allaah without being asked two questions: What did you worship? And how did you respond to the Messengers? The reply to the first is by realisation of laa ilaaha illallaah; knowing it, affirming it, and acting by it. The reply to the second is by realisation that Muhammad, sallallaahu 'alayhi wasallam, is the Messenger of Allaah; knowing it, complying with it and being obedient to it." 
Since understanding the meaning of a statement depends upon knowing its grammatical analysis, the scholars, may Allaah have mercy upon them, have paid great attention to the grammatical analysis of laa ilaaha illallaah. So they say:
The word: laa [which means 'No'] is known as a particle of absolute negation. The word: ilaah is its corresponding noun, which is inflected and which carries with it an implication of an omitted syntactical term (taqdeer). In this case, the taqdeer is designated as being the term: haqq (right); meaning that none has the right (or deserves) to be an ilaah. The phrase illallaah (except Allaah) is an exception to the previous negation and is in the nominative case.
The meaning of ilaah is: That which is defied with worship. It is that which the hearts love, adore and deify; hoping in it for the attainment of benefit or for the protection against harm. 
It is an error to think that the ellipsis (taqdeer) is the word existence (mawjood) or object of worship (ma'bood), because [the declaration of faith would then mean: No deity exists except Allaah, or: No deity is worshipped except Allaah]; whereas there are many things in existence that are worshipped besides Allaah, such as idols, tombs and other things. However, the only one that has the right to be worshipped is Allaah and whatever else is worshipped besides Him is futile, the worship of which is false.
AUTHOR: Shaykh Saalih al-Fawzaan
SOURCE: Laa ilaaha illa-Allaah: Its Meaning, Requirements and Effects upon the Individual and Society.
PRODUCE BY: Message of Islaam
 Shahaadah - The Declaration of Faith (i.e. Ash-hadu an laa ilaaha illa-Allaah wa ash-hadu anna Muhammadan Rasoolallaah).
 Zaad-ul-Ma'aad (1/34) of Shaykh-ul-Islaam Ibn-ul-Qayyim al-Jawziyyah.
 Thus the meaning of the declaration of faith is: That none has the right to be [deified and] worshipped, except Allaah.
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