The first thing to note is that its view is partial-dictationist. By 'partial-dictationist' I mean that the Classical Fundamentalist regards some of the Bible to be dictated by God, namely, those instances in which God is said to have spoken. As to the rest, there is no definite position. This is put very neatly by Bettex in his Fundamentals article, "The Bible and Modern Criticism":
But here a distinction must be made. The Bible reports matters of history, and in doing so includes many genealogies which were composed, first of all, not for us, but for those most immediately concerned, and for the angels (1 Cor. 4:9). Also it reports many sins and shameful deeds; for just as the sun first illuminates himself and then sheds his radiance upon the ocean and the puddle, the eagle and the worm, so the Bible undertakes to represent to us not only God, but also man just as he is. In giving us these narratives it may be said, moreover, that God, who numbers the very hairs of our head, exercised a providential control, so that what was reported by His chosen men should be the real facts, and nothing else. To what extent He inspired those men with the very words used by them, it is not for us to know, but probably more fully than we suspect.
But when God, after having communicated the law to Moses on Mount Sinai and in the Tabernacle, communes with him as a friend with friend, and Moses writes "all the words of this law in a book" (Dent. 28:58; 31 :24), then Moses really becomes the pen of God. When God speaks to the prophets, "Behold, I put my words in thy mouth," and "all the words that thou hearest thou shalt say to this people," then these prophets become the very mouth of God. When Christ appears to John on Patmos, and says, "To the angel of the church write these things," this is an instance of verbal dictation.
While it does not have any definite position as to the inspiration of 'the very words', it does exhibit the following sort of reasoning:
1. A scriptural text can only have doctrinal value to the extent that it is authoritative, and can only be authoritative to the extent it is reliable.
2. However, it can only be reliable to the extent that it is an accurate historical account.
3. It cannot be an accurate historical account if it is a heterogeneous compilation of mythology and folklore by unknown redactors.
Thus not all Scripture need be taken equally precisely as to the words (although there is a diversity of views about this); but it must all be taken equally accurately as to the facts. This, of course, is understood of the autographs or original record; there is some explicit allowance for errors by copyists and translators through history. There is a basic analogy between the Scriptural word and the Incarnate Word here as elsewhere: the Incarnate Word must be perfectly without sin, but this does not conflict with the concession of imperfection in our representations of His character.
Moreover, the Classical Fundamentalist view defines itself in opposition to the Higher Criticism, especially source criticism. Source criticism is seen as making the following mistakes: it treats naturalism as a sufficiently authoritative foundation for pronouncing judgment on the accuracy of the Word of God; contrary to its claims of scientific authority, it is a mish-mash of purely arbitrary suppositions; it systematically provides the interpretation of the facts of sacred history that is least favorable to a positive evaluation of the character of God; its practitioners treat the fundamentals of the faith with scorn and arrogance; it leads to relativism. However, there is no denial that there are sources for the Biblical texts; this is supported by recognizing that the Bible itself mentions some of them (the Book of Jasher, etc.).
The key to interpretation is taken to be experiential: one interprets Scripture in light of a personal encounter with the text as an authoritative source of conversion. In reading it, the reader finds his sins condemned in a way that he cannot evade and an opportunity for redemption that he cannot but recognize; when this opportunity is accepted it sweeps all doubt away. Sometimes the experience is not an experience of Scripture in reading but an experience of Scripture in evangelical preaching.
It's an interesting question, I think, how much of this Classical Fundamentalism has been preserved in more contemporary fundamentalisms.