Optical microfibers or nanofibers are waveguides with diameters close to or smaller than the guided wavelength. Because of the high contrast of the refractive index between the core and cladding material, they have the properties like strong light confinement, enhanced evanescent field, ultralow loss, abnormal waveguide dispersion, excellent surface uniformity and mechanical stability. In recent years, passively mode-locked fiber lasers based on nanomaterials saturable absorber have been a hotspot in the research field of ultrashort pulse generation. Benefitting from strong light confinement and large proportion of evanescent fields, the hybrid structure of nanomaterial and microfiber could enhance light-material interaction significantly and reduce the saturable absorption threshold, thus provide a flexible and innovative platform for the research on ultrashort pulse generation and nonlinear dynamics. Meanwhile, it has the properties of abnormal waveguide dispersion, spectral filtering, saturable absorption and polarization sensitivity, thus it could be applied for dispersion management and polarization induced mode-locking. This review article introduces the fabrication and characteristics of microfiber, its typical applications on mode-locked lasers, and related technology developments. The perspectives for future directions are also mentioned.