This paper covers review and challenges in the area of speech recognition by taking into account different classes of recognition mode. The recognition mode can be either speaker independent or speaker dependant. Size of the vocabulary and the input mode are two crucial factors for a speech recognizer. The input mode refers to continuous or isolated speech recognition system and the vocabulary size can be small less than hundred words or large less than few thousands words. This varies according to system design and objectives.. The organization of the paper is: first it covers various fundamental methods of speech recognition, then it takes into account various deficiencies in the existing systems and finally it discloses the various probable application areas.