With the end of the “2020 SO Identity Mystery”, the technique of space objects’ characterization and identification by spectra stands out again in Space Domain Awareness. The outstanding advantage of this technique is the ability to identify the material of space objects by the spectra reflected from their surface and then confirm the identity of space objects. We can still recognize the material by this method even when the image does not have a spatial resolution. In other words, The feasibility of characterizing space objects’ materials with a low-cost, small-aperture telescope has been demonstrated, which is unrealizable with traditional observation methods. Ph. D. Jorgensen’s thesis attracted much attention in this field in 2000, which started a research boom about the spectral characterization of space objects. However, the application of spectral characterization and identification techniques in space objects is still severely limited after development of over 20 years, which is inextricably linked to the approach of space objects’ characterization by spectra, as well as the complexity and unpredictability of the space environment. Researchers always characterize and identify the actual in-orbit objects based on measurements from the ground laboratory. However, there are some indescribable differences between them owing to the effects of the space environment. Spectral unmixing is a popular approach for determining the substance of space objects, whose principles and applications are thoroughly explained. This paper analyzes that the main factor of unsuccessful unmixing is the discrepancy between laboratory measurements and actual measurements, and the accuracy of unmixing largely depends on the perfection of the spectral library. So, the impact of the space environment and observation geometry on the spectral attributes of space objects must be considered before constructing the spectral library. Moreover, the use of Artificial Intelligence algorithms, on the other hand, can substantially improve the ability of space objects’ characterization and identification by spectra. This paper presents a detailed review and discussion of four aspects: space objects’ spectral attributes and classification, space object materials’ characterization and identification, the reddening of space objects’ spectra and the development of spectral databases for space objects. For relevant researchers’ convenience, we also analyze the difficult and key issues in this process and condense some constructive suggestions worthy of reference.