Optical microelectromechanical systems (MEMS) combine miniature optical components with precision fixtures, elastic suspensions, and microactuators, and allow complex functionality at low cost. However, the effect of the bounded nature of the beams propagating through the system on design is profound. The current paper reviews the fundamental consequences. Using a Gaussian beam formulation, models of guided modes in gradient index media, bounded beams and imaging components are constructed. Propagation algorithms are described. The alignment tolerances for common component trains such as fibre-to-fibre and beam-to-fibre connections are derived, limits on the curvature of reflecting surfaces are established, the scaling laws of free-space optical MEMS are presented and the effect of beam size on filter performance is clarified. Examples such as variable optical attenuators, optical cross-connect switches, filters and tunable lasers are discussed.