Carbon dots (CDs) possess outstanding luminescence properties, leading to their use in a wide range of applications including optical displays, anti-counterfeiting systems, bioimaging and sensors. Presently, there is much debate about the classification of CDs, as well as their formation process, structure and fluorescence mechanisms. Aggregation plays an important role in both the formation of CDs and their fluorescence (e.g. aggregation-induced emission), yet is seldom studied in detail. This review aims fill this knowledge gap, by firstly exploring how aggregation leads to the formation of different types of CDs (e.g. graphene quantum dots, carbon quantum dots, and carbonized polymer dots), followed by a detailed examination of the effect of aggregation-induced morphology on the luminescence properties and application of CDs. Finally, opportunities and challenges for the application of CDs in various applications are discussed, with the need for better mechanistic understanding of aggregation-induced luminescence being an imperative.