Important progress has been made within the past few years regarding the 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 plasmas and the modelling of cool and dense atmospheres, necessary for a correct description of such objects. These theoretical efforts now yield a better understanding of these objects and good agreement with observations regarding colour-magnitude diagrams of globular clusters, mass-magnitude relationships and near-IR colour-magnitude diagrams for open clusters. However uncertainties still remain regarding synthetic optical colours and the complex problem of dust formation in the coolest atmosphere models. We will present a review of the current success and uncertainties of the theory of these objects, which may guide forthcoming projects with GAIA.