This paper clarifies the concepts and connotations of ecological compensation in accordance with the sustainable development based on reviewing the practices and theories nationally as well as internationally. The principles of ecological compensation are presented through analyzing the self-organizations, feedbacks and recovery mechanisms of the ecosystem. The objective of ecological compensation is to enhance the ecosystem capacity which can help its own self-organization and adjust its structural variation through various channels, and achieve the sustainable development of human society eventually. Its connotation should be reflected by feedback of material & energy and reparation for regulatory function to the ecological system which has been lost its self-feedback and revive ability under the influence of human activities through a series of economic measures, laws and other related regulations. Furthermore, several application dilemmas and countermeasures concerning ecological compensation, such as ecological threshold, compensation line, regional responsibilities, laws and regulations, are discussed given China’s practical situation.