Ydjfqpb

added based on comments:

SVG is used only for the icons not available in standard lightning icons. All these icons can be used in lightning-icon. For the icons which are not available as standard in lightning design system, you need use option-2/3 below (through SVG - but it will be quite rare that you need something not already available in lightning)

For using icons, below are the options preference wise ordered:

1. Use lightning-icon

<template>
    <lightning-icon icon-name="action:approval" alternative-text="Approved" ></lightning-icon>
    <lightning-icon icon-name="doctype:audio" alternative-text="Audio file" ></lightning-icon>
    <lightning-icon icon-name="standard:event" alternative-text="Event" ></lightning-icon>
    <lightning-icon icon-name="utility:connected_apps" alternative-text="Connected" ></lightning-icon>
    <lightning-icon icon-name="utility:warning" alternative-text="Warning!" variant="warning"></lightning-icon>
    <lightning-icon icon-name="utility:error" alternative-text="Error!" variant="error"></lightning-icon>
    <lightning-icon icon-name="utility:image" alternative-text="Utility image" ></lightning-icon>
    <lightning-icon icon-name="doctype:image" alternative-text="Doc image" ></lightning-icon>
</template>

2. Use SVG in LWC template and use it directly. (you can provide api attributes for dynamic nature)

mysvg.html:

<template>
    <svg version="1.1" baseProfile="full" width="300" height="200" xmlns="http://www.w3.org/2000/svg">
        <rect width="100%" height="100%" fill="red"></rect>
        <circle cx="150" cy="100" r="80" fill="green"></circle>
        <text x="150" y="125" font-size="60" text-anchor="middle" fill="white">SVG</text>
    </svg>
</template>

Then use it wherever you need:

<template>
    <c-mysvg></c-mysvg>
</template>

3. Upload SVG in static resource and reference it in LWC JS.

JS:

import { LightningElement } from 'lwc';
import SVG_URL from '@salesforce/resourceUrl/svg_url';

export default class myComponent extends LightningElement {
    get svgURL {
        return SVG_URL;
    }
}

HTML:

<template>
    <svg xmlns="http://www.w3.org/2000/svg">
        <use xlink:href={svgURL}></use>
    </svg>
</template>