With the rapid development of urbanization and the widespread adoption of wastewater treatment facilities, the volume of sludge produced has steadily increased. Hydrothermal oxidation (HTO) technology offers an effective solution for sludge reduction, harmless disposal, and resource recovery, making it a highly promising method for sludge treatment. In recent years, HTO has attracted significant attention due to its efficiency and environmental benefits. This paper provides a detailed explanation of the fundamental principles of HTO in sludge treatment, with a focus on the removal of organic pollutants, nitrogen transformation, and phosphorus recovery. The influence of key operational parameters, such as reaction temperature, time, initial oxygen pressure, and pH, on the performance of HTO treatment is also explored. In addition, the research status of HTO sludge treatment and an example of product recovery after treatment are also discussed. It examines the challenges associated with scaling up HTO for large-scale sludge treatment, along with potential research directions for future work. Special attention is given to the innovation of catalysts, with the goal of achieving self-catalysis in sludge treatment. Moreover, considering that ammonia nitrogen (NH3-N) is a major intermediate product in HTO, its removal, as well as the prediction and planning of other unintended products, remains a key issue. Further areas of interest include improving sludge dewatering performance and enhancing the production of valuable single carboxylic acids, which can boost resource recovery efficiency. This paper also highlights the diversification of sludge applications after HTO treatment. By providing insights into future development trends, this review offers valuable references for further research and practical applications. The ultimate goal is to support the development of HTO as a sustainable and efficient solution for sludge treatment, addressing environmental concerns while maximizing resource recovery opportunities.