With the development of spatial techniques in geographic information systems (GIS), new methods have allowed for robust and detailed preparation of digital models of the earth's surface elevation, interpolation of climate parameters, and remote sensing of surface conditions in terrestrial environments. These methods in turn have led to greatly enhanced species distribution models (also called species niche models) by providing estimates of environmental conditions and predictions of potential and actual species distribution areas across entire landscapes. Species distribution models have become the subject of active field of research in large-scale ecology and biogeography, and have been used to solve many ecological issues in recent decades. Models are used for biodiversity assessment; biological reserve design; habitat management and restoration; population viability analysis; environmental risk assessment; invasive species management; community and ecosystem modeling; and predicting the effects of global environmental change on species and ecosystems. Species distribution models using species occurrence records (presence only or presence/absence data) associated with environmental variables seek to determine the fundamental niche or realized niche of a particular species, and then to project this niche onto the landscape of interest to reflect the potential distribution area of the species. Results could be interpreted as the probability of occurrence of the species, species habitat suitability or species relative richness. However, there is still insufficient knowledge of the theoretical basis of species distribution models, as some of the key ecological processes have not been incorporated into the framework of these models. This generates substantial confusion when the predicted results of species distribution models are explained. For more efficient use and further development of species distribution models, this study provides: 1) a full overview of the history and recent theoretical advances in the field of species distribution models; 2) a systematic discussion of the relationship between species distribution model and species distribution area; 3) a highlight of the critical limitations inherent in species distribution models; and 4) a focus on challenges of species distribution models for future research. Results from this study suggest that the theoretical basis of species distribution models is strongly related to niche theory, source-sink theory, population dynamics theory, metapopulation theory, and evolutionary theory. Proper understanding of the relationship between the predicted and actual species distribution area depends on separation of three factors (environmental condition, species interactions and species migration ability) affecting the distribution area of species. The main problems of current species distribution models are that they fail to efficiently integrate species interaction and species migration ability into the model building process, which creates gaps between the predicted and actual species distribution area under normal circumstances. Future development of species distribution models should focus on strengthening their inherent theoretical framework, and must integrate species interactions process, population dynamics process, migration process and evolutionary process into models. This study also suggests that simulating functional groups and community structure from higher theoretical levels is important for the development of species distribution models. We believe that through the efforts of scientists, future species distribution models can overcome the above-mentioned drawbacks and can dynamically model the multi-species potential distribution area, thus providing a more in-depth theoretical study of community ecology and biogeography.