Important progress has been made within the past few years regardingthe theory of low mass stars (m < 1 M⊙) and brown dwarfs(m < 0.075 M⊙).The main improvements concern the equation of state of dense plasmasand the modelling of cool and dense atmospheres,necessary for a correct description of such objects. Thesetheoretical efforts now yield a better understanding of these objectsand good agreement with observations regarding colour-magnitudediagrams of globular clusters, mass-magnitude relationshipsand near-IR colour-magnitude diagrams for openclusters. However uncertainties still remain regardingsynthetic optical colours and the complex problemof dust formation in the coolest atmosphere models.We will present a review of the current success and uncertaintiesof the theory of these objects, which may guide forthcoming projectswith GAIA.