I did promise a combat example. Sorry it took a while, this takes a lot longer writing it than it takes to play it in real life.
I ran this exact combat two nights ago and it took about 35-40 minutes to run, that is 35 minutes for the entire combat. Described here is the first round. This was completely done descriptively. BTW, this combat included a skill challenge to deactivate the Eldritch Engine as the combat raged. I allow skill checks as part of combat to be used as a minor action but you only get one per turn. If you want to use your standard action then you can use 2, but that is the limit. That way combat can proceed and a player can still be involved, or they can choose to concentrate on the skill challenge and have a chance to complete it faster. I also allow partial successes that in essence extend their time as they delay the device.
In this combat they only had 5 rounds to prevent the machine from activating. Once the machine activates it starts doing damage in an increasing radius until round 10 when it collapses the building killing everyone inside. When the machine activates the party starts another skill challenge to escape the building. This never happened because they were able to deactivate the machine.
<Gridless Combat Example>
The Company of the Lantern has delved deep into the dungeons below Castle Herood to stop the evil machinations of the Hobgoblin Hexra and his Eldritch Engine. They are a Drow rogue (DR), a Dragonborn warlord (DW), an Elven ranger (ER), a Dwarven fighter (DF), and a Human wizard (HW). After encountering all kinds of nasties on their trip they arrive to the location they believe to be the the location of the Eldritch Engine and their final confrontation, the Chamber of Stars.
DM: you have arrived at a pair of elaborate doors that seem locked. What do you do?
DR: I'll move forward and check for traps, unlock them, and step back.
DM: okay, you see no traps and are able to unlock them easily.
DW: I'll move forward with the fighter and will open up the doors.
DM: as you open the doors the heat of the room encompasses you. The room is about 60' wide and 80' in length and 60' in height. The last 30 feet of the room are elevated from the main floor with stairs on both sides leading up to this 15' platform. On the platform you see what is causing the heat in the room an infernal machine is spinning an pumping, viscous liquid traveling in clear tubes all around. Whirling mechanical blades surround it and spin around it in arcs as Hexra makes incantations from a balcony 30' high above the platform on the wall behind the Eldritch Engine. On each side wall of the room there are balconies 40' above the main floor. There are 4 orcs on each of those balconies dressed in the purple garb that you've seen worn by the cultists of Venren. You see alcoves in each of those balconies that seem to be corridors leading away from them. You are pretty sure that the Eldritch Engine is in the final preparations to activate and you have very limited time to stop it. Should you fail to stop it during this combat you're pretty sure that it will activate, devastating not only Castle Herood but the surrounding countryside. Hexra cackles maniacally and points towards you, "kill them, we'll coat the Machine with their blood." On the main floor 6 more orcs dressed in the same garments, but much bulkier (as if they were wearing armor) turn to regard you. They draw weapons and get ready for combat. They are divided 3 on each side down the center of the room in two lines 15' apart. Each of the orcs in a line is 5' away from the next orc. Both lines are pointed towards the door you entered from. The nearest orcs are 15' from the door. Roll initiative.
DR: If I clump one of the last two orcs on the back left side with those on the right side, can I get 3 of them close enough for a 3x3 attack?
DM: Yes.
DR: I hustle forward trying to avoid attacks and get as close as possible in position to move the orc closest to the Eldritch Engine on the left side. I stab forward faking him with my long knife and put the bulk of the thrust in shifting my weight so he'll move. 26 vs. Will. I'll use sneak attack too. That is 27 points of damage. I'll slide him close into position between the other two on the right.
DM: he's got a great axe and tries futilely to block your attack. He howls in pain as your stab gets beneath his armor and your body slides him away all the while howling in pain. That orc is bloodied and he ends up between two of the orcs on the right hand side. From your new position you notice that eldritch energy from the machine surrounds Hexra in the balcony above.
DR: Am I close enough to throw my long knife at him?
DM: Not from this angle but you can if you get on the platform. You can feel a lot of heat coming from the machine.
DR: Okay I'm done.
DW: I'll delay until after the fighter.
DM: Two of the orcs on each balcony fire down. The two on the left target the rogue, the two on the right are targeting the Warlord. Warlord you have cover from the edge of the door. 19 and 21 on the rogue, 22 and 20 on the warlord.
DR: one of them hit me.
DW: are you already accounting for the cover?
DM: no, 20 and 18.
DW: both missed.
DM: rogue you take 8 points of damage.
DM: the other two orcs on top of the balconies seem to be waiting for something.
DF: I'll move to the left hand side and engage the second orc in the line. I want to place myself between the two orcs on the left.
DM: getting there will provoke from one of them.
DF: that's okay.
DM: the orc takes his attack. 20 vs. AC.
DF: that misses. Now that I'm between both of them I'm going to open up a dwarven cask of whup-ass. Rain of blows. 22 vs. AC on the first and 20 vs. AC on the second. 12 damage on the first and 13 damage on the second. They're both marked.
DM. They're surprised that you'd get between them but you're attack staggers them a bit.
DF: I'm done for now.
DW: I'll get beside the dwarf and adjacent to the nearest orc. Fighter, do the honors, Commander's Strike, add + 3 to your attack. Rogue, do you need healing? No.
DF: 24 vs AC. Booyah, I swat the orc like a fly. 13 points of damage.
DM: the nearest orc howls in pain rage apparent in his eyes.
DW: "rogue go for the eldritch engine." Knight's Move - take a free move action.
DM: warlord that provokes from the nearest orc, 22 vs AC. gheto crit 15 points of damage.
DF: Booyah open up sucker, I swing my flail at his head for being so dumb. 17 vs AC. 11 points of damage.
DM: damn, he screams in pain. He didn't like that at all. He's bloodied, and he's pissed at you dwarf. He calls his buddy on the right side for help.
DR: I move towards the platform and the eldritch engine, can I reach it?
DM: taking the stairs will get you there but you'll not be adjacent to the machine when you get to the top. A quick sidestep on your next move can get you adjacent to the machine. When you get to the top of the stairs you step on a tripwire and the machine hums in harmony. A bolt of energy screams towards you. 19 vs. Reflex. The bolt scampers across the platform but misses you. When you get to the top of the platform you can definitely feel the heat from the machine. The remaining orcs on the balcony let loose with their arrows. You'll have cover from the ones on the right side. 18, 19, 20 and crit.
DR: the 18 and 19 miss.
DM: 9 & 13 points of damage.
DR: Ouch. "Medic!!!", I'm bloodied and very near 0.
DM: Hexra cackles from atop the balcony. You definitely see that he is engulfed in energy from the machine. The first two orcs in the line put their great axes to good work. The one on the right charges towards the dwarf. The other has combat advantage and he's marked by you so he'll take a slice too. 22 vs AC from the one with CA, and 21 from the charging one. gheto crit from the CA one 17 damage. 12 damage from the charging one.
DF: I'll interpose my flail deflecting the one with combat advantage. No Opening. He misses. The other one hits.
DM: the one with combat advantage is furious and you see him not care about his injuries, he is no longer bloodied. Hexra looks at the rogue below and cackles again. He activates the Eldrith Machine and another bolt of energy streams towards the rogue. 24 vs Reflex. 9 points of damage. The bolt of energy hits you in the chest knocking the wind out of you and pushes you back towards the wall. Thankfully that prevents the archers above from targetting you.
DR: crap!!! The energy bolt knocks me unconscious, barely.
HW: I invoke the power of lightning and call the arcane energies to me, aiming my staff at the orcs. I'm centering a Shock Sphere on the three clumped orcs. 14 damage if I hit. 16, crit, 15 vs. Reflex. The crit will take 21 points of damage as the magic of the staff triggers. Then I'll move to a position by the door where it will be difficult for the orcs to reach me easily or the archers to attack me. I will also pull out a potion of healing in case I have to make a beeline for the rogue.
DM: The orc that had been hit by the rogue crumples to the ground as the electric energy decimates him. As you take cover by the door you see that Hexra fixes his eye on you. The archers on the right hand side have noticed you, and the two orcs you just hit raise their great axes in unison. One of them charges the dwarf and the other charges towards you. 21 vs AC on the dwarf. 10 points of damage. 20 vs AC on the wizard. 14 points of damage.
HW: I will raise my staff in front of me erecting an energy shield. He barely misses me.
ER: Finally, it sucks to roll a one on initiative. I'll quarry the orc with the wizard. Drawing both of my broadswords I'll get in his face. If I start pushing him can I put him in line with the other orcs that have moved to the left?
DM: You'll have to move him 20 feet to get him there from where you guys are.
ER: Okay, I bring the swords in and start the "dance of death" on this poor sucker. 18 & 17 vs. AC. 12 and 10 damage. I hit both times so I'll push him right next to his buddy on the first line and I'll activate my gauntlets of the ram for that extra special push and put him in the second line.. Oh, and add 8 more damage from the quarry.
DM: He's bloodied and doesn't look like he's doing well.
ER: Aw, heck. I'll move towards the one in the front line with my weapons drawn. With my movement I can get to the spot between him and the one in the second line, right? I'll action point and use twin strike starting with the one I did not quarry. 14 and 15 vs. AC.
DM: both miss.
DW: did you count the combat advantage you have with me and the +2 for using an action point.
ER: Nope, 18 and 17 vs AC. 12 damage against the one in the frontline and 8 damage against my quarry.
DM: Both hit. Your quarry falls back grasping at his gut as his entrails fall out and the one in the front line eyes you with fury as he goes back to bloodied.
<END EXAMPLE>
FYI the party has a standard marching order and has been playing together for a while so they understand each other's tactics.
I hope this example shines some light into how to use combat tactics and positioning without a grid. Though this example refers to 4e and some of the powers involved, this is pretty much how we did gridless combat in 1e also.
As someone said before it is important for the players and DM to trust each other in this model, because that way nobody feels cheated. As a DM I give the players a basic understanding of the layout of the combat and let them ask any questions they have.
I find that the best way to describe is to give the layout of the room first so that they can visualize the environment, then I go ahead and tell them where the creatures are located.
Something I didn't do for this combat because it was not very complicated but I have done for much larger combats, or combats in very unusual settings that can screw the players up, I draw a simple diagram behind the DM screen and I use that so I can track positions. Even with a diagram I usually err on the side of the player if there is a misunderstanding on position. My players are also used to asking questions about the environment as they go along.
Hope this helps.