This article summarizes our understanding of the Kondo effect in graphene, primarily from a theoretical perspective. We shall describe different ways to create magnetic moments in graphene, either by adatom deposition or via defects. For dilute moments, the theoretical description is in terms of effective Anderson or Kondo impurity models coupled to graphene's Dirac electrons. We shall discuss in detail the physics of these models, including their quantum phase transitions and the effect of carrier doping, and confront this with existing experimental data. Finally, we will point out connections to other quantum impurity problems, e.g., in unconventional superconductors, topological insulators, and quantum spin liquids.