In English folklore it was believed that the Odin Stone, also called the Holey Stone, Witch Stone, Hag Stone, Wishing Stone and Seeing Stone had particular magical properties. It could be used to protect people from nightmares and as a defence against thunder and lightning but also it enabled the possessor of the stone to see into the future and other worlds. As pointed out in http://celto-germanic.blogspot.co.uk/2013/08/odin-stones-and-odin-stone.html (12/8/13) it was associated both with Woden and Thunor.
What I would like to focus on in this article is its association with Woden and His All-seeing eye. In the Eddas it is said that Odin was the occupant of the throne Hlidskjalf. Rudolf Simek in his Dictionary of Northern Mythology suggests that the etymology of hlid is opening. We know of course that skjalf means tower, being linked to the Old English scylf and scef. The Middle Dutch schef means scaffolding. John Lindow in his Handbook of Norse Mythology suggests doorway-bench or watchtower as possible meanings. Apart from Odin only His consort Frigg is allowed to occupy this watchtower. On one occasion of course Frey did so but this resulted in his temprary madness when He became infatuated with the giantess Gerd.
This High Seat enables Odin to view the nine worlds. This transforms Him into the All-Father, who is All-knowing. His ravens Huginn and Muninn perform a similar function as His eyes and ears. This ability is only intended for Odin who alone of the Gods is All-seeing and All-knowing. However Heimdall does appear to have certain similar abilities but it should be noted that there is already a certain overlap between these two Gods. Rig, the father of the three Germanic castes is represented in the prose introduction to the Rigsthula in the 14th century Codex Wormianus as Heimdall. I believe this to be a mistake and Rig is merely the title which rightly belongs to Odin, as this means king in Irish. It also cognate with the Latin rex.
Going back to Odin Stones it is believed that by looking through such a naturally formed holed stone one can see into the future:
"In English folk tradition, smaller stones with natural holes through them are seen as magical and used as amulets. While speculative, it is thus not beyond the bounds of reason to suggest that 'Hlidskjalf' could actually have reflected such a belief, and that Odinn's capacity to see through all the worlds from his seat there was as much a function of the holy/magical opening in the boulder-cf. the scene in Saxonis Gesta Danorum where the battle-maid Ruta tells Biarco to look through the opening in her bent arms so as to see Othinus (vol. I, II, vii, verse 26, p.60)" (Miscellaneous Studies Towards the Cult of Odinn, Stephen Grundy, 1994)
These small Odin Stones are a portable version of the large megalithis that contain large holes, some of which still survive today. The most famous one, the Odin Stone was destroyed in 1814 and was located near the Stanness Standing Stones on Orkney. Parents would often pass their sick children through them for healing as they were regarded as sacred. Trees sometimed fulfilled a similar function:
"These trees, when young and flexible, were severed and held open by wedges, while ruptured children, stripped naked, were pushed through the apertures, under a persuasion that by such a process the poor babies would be cured of their infirmity."This custom, and that of passing children and cattle through perforated earth or rocks, or through natural or artificial openings in trees, especially the ash and the oak, is common to most European countries."(Curiosities of Indo-European Tradition and Folk-lore, Walter Keating Kelly, 1863)
Dr Grundy also refers to the Externsteine:
"The German sandstone formations called the Externsteine include one crag with a hole bored in the northeastern wall of the plateau to catch the light of the rising Midsummer sun, though there is considerable question as to whether this was done by native worshippers, or in the post-conversion period...."
In the Germanic and Cetic worlds kings were crowned upon sacred stones. Phase III of Stonehenge fulfilled such a purpose and it is significantly round in shape. The hole in the Odin Stone megalith and those in the smaller Odin Stone amulets represented the Eye of Odin. In exchange for wisdom Odin deposited His eye in Mimir's well. His eye also signifies the light and wisdom of the sun. Significantly the so-called Celtic Cross or Sonnenrad is also called Odin's Eye or Wotans Auge.