Renewable Energy Sources such as Solar Photovoltaic, Wind, and Micro hydel power plants are effectively penetrating in the existing power infrastructure to supply clean energy to the end user. These sources can be utilized in Islanded or Grid connected mode. Microgrid operation in Islanded mode is ideal for the locations where existing grid infrastructure is unreachable or power quality is not up to the desired end user level. Major concern of microgrid operation in islanded mode is control of active and reactive power and complete power balance using electronic inverter interfaced mechanism. This paper presents survey on control techniques used to optimize, Control, and enhance the power quality of Islanded microgrids. Operation of microgird in islanded mode has been discussed whereas success stories and challenges faced while implementing microgrid in different parts of the world has also been discussed in the paper.