Distributed generation (DG) has increased ever attention in the distribution system from last few years. The main reason for DG in distribution system is increasing electric demand, deregulated power system and congested transmission network, which eventually declines the system performance. There is also increasing pressure of greenhouse gas emissions. For proper utilization of DG, the optimal placement and sizing is of main concern. Because improper DG location and size will increase the losses and decrease the system performance than existing. On the contrary, proper placement will maintain voltage profile, reduce power loss, and increase voltage stability in the distribution system. This paper presents overview of DG, the advances in DG technology and different optimization methods used for optimal placement and sizing problem. The key issues and challenges offered in the development of DG is also presented in this paper. © Owned by the authors, published by EDP Sciences, 2016.