By-products generated by the fish processing industry are produced in large quantities, contributing to environmental concerns. However, these residues represent a valuable source of fish oil, renowned for its health-promoting properties and wide-ranging applications in the food, pharmaceutical, and industrial sectors. This review compiles and analyzes recent studies on the chemical composition, bioactive compounds, functional properties, and pharmacological effects of fish oil, focusing on research indexed in PubMed, Scopus, Google Scholar, Semantic Scholar, Web of Science, and ResearchGate. Extraction methods aimed at maximizing yield and purity, strategies to enhance oxidative and thermal stability, and innovations that improve techno-functional properties are critically evaluated. The incorporation of fish oil into food formulations is discussed, highlighting its role as a functional ingredient. Additionally, the review explores the conversion of fish processing by-products into value-added products, including aquaculture feed and biofuels. Overall, this work presents a comprehensive overview supporting the sustainable utilization of fish oil.