As a promising large‐scale energy storage technology, all‐vanadium redox flow battery has garnered considerable attention. However, the issue of capacity decay significantly hinders its further development, and thus the problem remains to be systematically sorted out and further explored. This review provides comprehensive insights into the multiple factors contributing to capacity decay, encompassing vanadium cross‐over, self‐discharge reactions, water molecules migration, gas evolution reactions, and vanadium precipitation. Subsequently, it analyzes the impact of various battery parameters on capacity. Based on this foundation, the article expounds upon the significance of battery internal state estimation technology. Additionally, the review also summarizes domestic and international mathematical models utilized for simulating capacity decay, serving as a valuable reference for future research endeavors. Finally, through the comparison of traditional experimental methods and mathematical modeling methods, this article offers effective guidance for the future development direction of battery state monitoring. This review generally overview the problems related to the capacity attenuation of all‐vanadium flow batteries, which is of great significance for understanding the mechanism behind capacity decay and state monitoring technology of all‐vanadium redox flow battery.