Hydrothermal carbonization (HTC) emerges as a promising technology to reduce the volume of activated sewage sludge (SS) and generate solid products as fuels. During HTC, extracellular polymeric substance and cell wall degrade to form low molecular compounds, which can further carry out hydrolysis, dehydration, polymerization, etc. The temperature has a notable impact on the HTC, which ultimately changes the composition of the aqueous phase. A large amount of the aqueous phase remains a by-product containing high amounts of organic and inorganic compounds. Herein, the HTC of SS process and aqueous phase treatment were discussed, especially in industrial applications within China. This review depicts the influence of aqueous phase properties on the hydrochar properties of SS, especially using the aqueous phase recirculation process. The mechanism during HTC of SS has been discussed, especially Maillard reaction, which would significantly influence the aqueous phase and hydrochar. The systematic information on the current research, new applications and new perspectives in this field to promote its further development were provided. •Hydrothermal carbonization of sewage sludge receives great attention.•The main reactions involved in hydrochar formation are reviewed.•The aqueous phase treatment is summarized.•Hydrochar physicochemical characteristics from sewage sludge are summarized.