Flywheel Energy Storage System (FESS) is an electromechanical energy storage system which can exchange electrical power with the electric network. It consists of an electrical machine, back-to-back converter, DC link capacitor and a massive disk. Unlike other storage systems such as the Battery Energy Storage System (BESS), FESS is an environmentally-friendly short- or medium-term energy storage system, which has the capability of numerous charge and discharge cycles. These characteristics make the FESS a suitable choice for different applications in the power system such as power quality improvement, power smoothing, renewable energies integration support, stability improvement, etc. This paper presents an overview on the structures and applications of FESS in power system and Microgrid (MG) and also challenges, problems and future works discussed. It can be a driver for development of FESS applications and also recommends suggestions to use its advantages in other areas. Investigation of different studies shows that FESS, as a developing technology, can play an effective role in the operation of the present and future power system and MG.