The aim of the following article is a comprehensive review of the cluster theory. Article starts with the discussion on the new approach towards regional and local development. In the first part author presents and discusses spectrum of concepts related to clusters such as: Marshallian industrial district, Italian industrial districts, new industrial spaces, mezo-systems, local innovative milieu, learning regions, and regional innovation systems. The core of the article is the analysis of the cluster approach: its theoretical inspiration and background, definitions, its specificity, effects of clusters described in literature, strength and weaknesses of this approach. The last part of the article is devoted to the practical issues – examples of cluster-based policies. This short review covers the initiatives undertaken in the countries of European Union.