The case was decided by a three judge panel, who ruled unanimously that the Second Amendment is "incorporated" against the states. In the wake of the Supreme Court's Heller decision, the court was also forced to abrogate their own prior precedent that held the Second Amendment was a collective, rather than an individual, right.
From the opinion, on the incorporation issue:
We therefore conclude that the right to keep and bear arms is “deeply rooted in this Nation’s history and tradition.” Colonial revolutionaries, the Founders, and a host of commentators and lawmakers living during the first one hundred years of the Republic all insisted on the fundamental nature of the right. It has long been regarded as the “true palladium of liberty.” Colonists relied on it to assert and to win their independence, and the victorious Union sought to prevent a recalcitrant South from abridging it less than a century later. The crucial role this deeply rooted right has played in our birth and history compels us to recognize that it is indeed fundamental, that it is necessary to the Anglo-American conception of ordered liberty that we have inherited. We are therefore persuaded that the Due Process Clause of the Fourteenth Amendment incorporates the Second Amendment and applies it against the states and local governments. [Slip op. at 29, footnotes omitted and emphasis added]
And from Judge Gould's short concurring opinion:
I concur in Judge O’Scannlain’s opinion but write to elaborate my view of the policies underlying the selective incorporation decision. First, as Judge O’Scannlain has aptly explained, the rights secured by the Second Amendment are “deeply rooted in this Nation’s history and tradition,” and “necessary to the Anglo-American regime of ordered liberty.”
The salient policies underlying the protection of the right to bear arms are of inestimable importance. The right to bear arms is a bulwark against external invasion. We should not be overconfident that oceans on our east and west coasts alone can preserve security. We recently saw in the case of the terrorist attack on Mumbai that terrorists may enter a country covertly by ocean routes, landing in small craft and then assembling to wreak havoc. That we have a lawfully armed populace adds a measure of security for all of us and makes it less likely that a band of terrorists could make headway in an attack on any community before more professional forces arrived. [emphasis added]
Second, the right to bear arms is a protection against the possibility that even our own government could degenerate into tyranny, and though this may seem unlikely, this possibility should be guarded against with individual diligence. [emphasis added]
Third, while the Second Amendment thus stands as a protection against both external threat and internal tyranny, the recognition of the individual’s right in the Second Amendment, and its incorporation by the Due Process Clause against the states, is not inconsistent with the reasonable regulation of weaponry. All weapons are not "arms" within the meaning of the Second Amendment, so, for example, no individual could sensibly argue that the Second Amendment gives them a right to have nuclear weapons or chemical weapons in their home for self-defense.
Also, important governmental interests will justify reasonable regulation of rifles and handguns, and the problem for our courts will be to define, in the context of particular regulation by the states and municipalities, what is reasonable and permissible and what is unreasonable and offensive to the Second Amendment. [Gould, J., concurring, slip op. at 41-43, footnotes omitted and paragraphs breaks added for readability]
Ironically, the plaintiff gun show organizers lost their case, as the appeals court held that the municipal ban on guns on county property (where the gun shows were held) did not violate the Second Amendment.
Read the court's ruling here.
UCLA law professor Eugene Volokh has some commentary here (on the court's incorporation reasoning), here (on why the plaintiff gun show organizers ultimately lost on the merits), and here (on the concurring opinion by Judge Gould, a Clinton appointee).
This is an important step in getting the Supreme Court to rule (for the entire nation) that the Second Amendment is incorporated against the states, i.e., applies to the states as well as the federal government.
The other critically important issue that the Supreme Court needs to rule on is the standard of review that courts must apply when assessing the constitutionality of gun control laws. This is where the rubber meets the road, so to speak, and will determine which gun-control laws the courts will strike down as violative of the Second Amendment. I know, I know, what part of "shall not be infringed" don't they understand? I'm simply referring, however, to the process by which the courts operate today in reviewing constitutional issues, and that process involves differing "standards of review" for different constitutionally protected rights. You might not like it, but that's the way it is.
We still have the Chicago gun ban case now up on appeal, so we'll have to wait and see how the Seventh Circuit rules on the incorporation issue. If the Seventh Circuit rules that the Second Amendment does not apply to the states, then we would have what's known as a "circuit split". The Supreme Court is more likely to get involved in resolving such circuit splits, where different federal appeals courts have ruled differently on the same legal issue.