Silicon sludge, the photovoltaic cutting silicon waste, has become one of the expected raw materials for the key silicon carbon anode materials used in high energy density batteries above 300 Wh·kg^-1 due to its low cost, two-dimensional lamellar structure and ultrahigh specific capacity (4200 mAh·g^-1). However, silicon sludge requires systematic modification because of its challenges such as complex composition, large particle size, poor electrical conductivity, low stability and poor electrochemical performance. This paper systematically reviews the application status and research progress of silicon sludge in lithium-ion batteries. Firstly, the important effects of metal and non-metal impurities on battery performance are summarized, in which metal impurities are normally removed by magnetic separation and acid pickling, and non-metallic impurities are removed by liquid-liquid extraction and heat treatment. Secondly, detailed elucidation about the initial performance and modification methods of the silicon sludge is provided. Concretely, silicon sludge can be nano-sized to reduce expansion by grinding, etching, electrothermal shock, and alloy dealloying, enhance electrical conductivity through doping the intrinsic silicon and doping the carbon layer on the silicon surface, improve stability through the construction of inert layer, conductive layer and functional group, and obtain mechanical support and protection through silicon-carbon composite. Finally, the challenges, development directions and future prospects of silicon-based anode based on silicon sludge are put forward, aiming to provide a reference for converting silicon sludge into treasure and promote the rapid development of high energy density lithium-ion batteries.