According to the traditional practice of Jewish law, God's Hebrew name has a high degree of reverence -- so much that it is forbidden to say or write the name. But thankfully, we have given nicknames for the man in the sky so we don't have to pull a Harry Potter and keep referring to him as "you know who" -- in fear that our loving God will smite us for saying his name.
But according to the Bible, "God" is not his real name. This is simply one of the many other names given to the mighty smiter, in other words, the characters that make up the word "God" represent the word "God" which represents the big guy himself. Now, if we write "God" as "G-d", we are still using characters that make up the word, that represents God. So what exactly is the rule here? God is offended by the letter "o"?
This is just another absurdity, which results in a practice that people never bother to stop and question, because it has to do with God.