In Germanic languages including but not limited to Icelandic, the chief culprits when it comes to "long words" are noun adjuncts. This is to say, these "long words" arise thanks to the readiness with which Germanic languages permit nouns to modify other nouns, usually without any requirement for derivational morphemes or prepositions facilitative of this usage, nor any particular limit to the number of noun adjuncts which may consecutively modify one another.

Note that the distinction between a series of noun adjuncts written with spaces intermediate between each noun (on the one hand) and a series of noun adjuncts written as a single word (on the other) is a purely orthographic one. Standard German orthography prefers to write consecutive noun adjuncts without spacing. English orthography prefers to write noun adjuncts with spacing intervening. Grammatically, there is no difference. English is just as much inclined to create a potentially endless noun adjunct sequence. It is just as comfortable inventing a new term for, say, a safety device for notifying buses that a train will soon be crossing, calling it a "bus route train crossing sign post alarm bell mechanism" (i.e., nine consecutive nouns).

At every stage in English history, inclusion of spacing between noun adjuncts has been conventional. Going back far enough, in Old English, word divisions do at times become a bit more hazy and arbitrary (or in runic texts, entirely absent). But this is not indicative of tendencies with respect to noun adjuncts.

Welsh and Icelandic are actually relatively tame when it comes to long words, the real culprits are what are known as agglutinative languages, which include languages like Turkish and Korean. Essentially in these languages, the meaning of a word can be modified by adding a whole load of extra affixes to one single root. Take for instance the Turkish word Muvaffak, meaning 'successful'. To make the word a noun, one can add the suffix -iyet, making Muvaffakiyet, or 'success'. To create the antonym of that word, one can then add another suffix -siz, making Muvaffakiyetsiz, or 'lack of success'. Eventually you can cram more and more affixes to a word until you're able to get something like Muvaffakiyetsizleştiricileştiriveremeyebileceklerimizdenmişsinizcesine meaning 'As though you happen to have been from among those whom we will not be able to easily/quickly make a maker of unsuccessful ones'.

Just a note about Llanfairpwllgwyngullgogerychchwyndrobwlllantysiliogogoch; that placename was intentionally invented as 'the longest place name' in the 1860s, for the purposes of attracting visitors to the area. Typical place names and toponyms in Wales are nowhere near as long as this, and neither does the Welsh language contain particularly long words compared to, say, English.

You might try posting to /r/linguistics as well.