Wide bandgap aluminum gallium nitride (AlGaN) semiconductor alloys have established themselves as the key materials for building ultraviolet (UV) optoelectronic and power electronic devices. However, further improvements to device performance are lagging, largely due to the difficulties in precisely controlling carrier behavior, both carrier generation and carrier transport, within AlGaN-based devices. Fortunately, it has been discovered that instead of using AlGaN layers with fixed Al compositions, by grading the Al composition along the growth direction, it is possible to (1) generate high-density electrons and holes via polarization-induced doping; (2) manipulate carrier transport behavior via energy band modulation, also known as ‘band engineering’. Consequently, such compositionally graded AlGaN alloys have attracted extensive interest as promising building blocks for efficient AlGaN-based UV light emitters and power electronic devices. In this review, we focus on the unique physical properties of graded AlGaN alloys and highlight the key roles that such graded structures play in device exploration. Firstly, we elaborate on the underlying mechanisms of efficient carrier generation and transport manipulation enabled by graded AlGaN alloys. Thereafter, we comprehensively summarize and discuss the recent progress in UV light emitters and power electronic devices incorporating graded AlGaN structures. Finally, we outline the prospects associated with the implementation of graded AlGaN alloys in the pursuit of high-performance optoelectronic and power electronic devices.