From what I've seen ...
a) There's two personality
traits I look for in future engravers. While I have no idea to what extent this influences what they engrave, the more creative dwarves seem to engrave "dwarf surrounded by dwarves" somewhat less frequently.
. appreciates art and natural beauty
. creative / imagination
b) My theory is that the game tracks events which a dwarf has experienced or seen, with more imaginative dwarves allowed more semi-random engravings (depending on biome?).
So a dwarf would choose from
1) list of standard engravings - dwarves mainly
2) recent events (deaths, kills, fights, megabeasts (possibly even before they arrive?))
3) your fort's artifacts ("dwarf raising a blowgun")
4) maybe masterwork items ("dwarf raising a rope reed trouser")
5) (depending on the Creativity personality trait?) - random (square, circle, moons)
6) (depending on personality, skill, biome, ??) - random creatures (Eagles, Elephants, whatnot)
7) Plants? Maybe related to what's in your stockpiles, or to biome ("plump helmet", "rope reed")
To sum it up, it's IMO probably a a) standards b) events (anything announced in the log?), c) biome related semi-randoms.
Plus there's at least one modifier - "masterful image of", so you can the an engraving of a chair, or an engraving of an image of a chair...
I don't think the dwarf's religion does much; maybe my engravers just aren't fervent enough believers to care about engraving gods though
[ June 04, 2008: Message edited by: Samyotix ]