Microbial fuel cells (MFCs) are bioelectrochemical devices, which produce electrical energy from wastewater through degradation of biodegradable organic substrates. The use of MFCs for energy generation from wastewater biofuels through electrochemically active bacteria as biocatalysts has been accepted in the recent past. The power output of MFCs depends upon the electrode material, pH of the medium, temperature, internal and external impedance, and redox potentials of cathodic and anodic chambers. The current review highlights the importance of tuning these parameters for improving the energy generation efficiency of MFCs. Because every technology has associated merits and demerits, thus, to avoid offering details of only success stories, here an effort has been made to critically discuss the recent progress and challenges in the applicability of MFCs as an energy generation source and water purification technology.