This paper reviews recent developments in power loss analysis applicable, but not limited to, the thermal design of electrical machines. Accurate and computationally efficient loss prediction is an essential element in thermal analysis of electrical machines, and has become an increasingly important part of the machine design-development process. The continuous drive towards 'more electric' technologies has resulted in a need for a more comprehensive and detailed design approach, where various multi-physics and multi-disciplinary effects are accounted for. This 'design for application' methodology relies strongly on the advancements and evolution of the existing theoretical and experimental design techniques to satisfy the evermore-demanding machine design requirements. The thermal behaviour and efficiency of the power conversion are the machine performance measures, which are the essential elements of the 'design for application' approach. An overview of the challenges and limitations regarding the power loss analysis in the context of thermal design of electrical machines is provided in the paper. All of the major loss components associated with the active parts of the machine assembly are discussed.