In my experience, there are two kinds of battles that are suitable for Theater of the Mind.
(1) Fights with many combatants milling around one fixed point of reference.
(2) Fights with one enemy combatant moving between several fixed points of reference.
Fights with several enemy combatants moving between several fixed points of reference aren't really suitable for TotM.
If You Have One Fixed Point of Reference
If you’re running a fight around one fixed point, the main opportunity for environmental interaction obviously must come from that fixed point. A good example of this kind of fight is the DDN in-house playtest where the party and the orcs are fighting around a flamethrower contraption. From what I've seen, players find it satisfying to destroy or mangle the fixed point of reference; again, the playtest fight offers a great example of this. So it’s best to make that fixed point something that’s in effect a barrel of dynamite with multiple brightly colored fuses just waiting to be lit, or an extremely expensive and fragile vase that somebody doesn’t want to see broken.
If You Have One Enemy
If you’re running a fight with a single enemy (usually a boss type), then there are a couple different things to keep in mind.
First, the single enemy can use terrain features like he would his minions. For example, he can use the terrain to as blockers: the archetype is probably the teleporting mage that moves from alcove to alcove in order to keep out of sword reach of the fighter. The enemy might use the terrain to heal himself somehow—I just played through kotr on my iPad, and the final battle is fresh in my mind. The enemy might use the terrain to inflict damage—I’m always reminded of the examples back in one of the 2E supplements where an enemy has about ten loaded heavy crossbows mounted in a line as the PCs charge in and he moves between them inflicting some pretty serious damage in the first couple rounds of combat.
Second, if there is really only one enemy, it’s a safe bet that either he or the players will find themselves on the run at some point. So you will want to decide beforehand whether the fixed points of reference will aid or stymie escape, and also what avenues for escape are actually available.
The Sniper: Exploration with Combat Elements
There is another kind of TotM battle that probably has a fancy name of which I am unaware: I like to call it "exploration with combat elements". In this type of fight, there are enemies present either taking pot shots at the PCs, or threatening to. I don’t use strict timekeeping for this kind of fight; instead, I just ask everyone what they’re doing and update the NPC actions whenever it feels appropriate.
Usually this kind of fight is actually a built-in clock against which the PCs must race while attempting to complete some other task. For example, if the players are attempting to fend off a pitchfork mob while working to free a prisoner from jail, they have to contend with the occasional stone or hunting arrow shot in their direction, but the real purpose is to remind the players that they have a finite amount of time to complete the exploration task before the mob loses its temper and decides to burn the jail down with them in it.
The last thing to keep in mind about TotM is that there’s no shame in deciding that this particular battle has gotten too complicated for TotM, and just throw together a sketch so everyone’s on the same page again. For that matter, there’s no shame in keeping a little sketch behind the screen for you keep tabs on who’s where doing what to whom, especially if there are things happening off camera that you need to keep track of.