Abstract: Dense plasmas are ubiquitous in stellar interiors and high-energy-density physics (HEDP) environments, such as inertial confinement fusion. Research over the past decade has demonstrated that the currently prevalent mainstream theories concerning microscopic atomic processes and macroscopic physical properties in dense plasmas—such as those addressing ionization potential depression (IPD), electron-ion collisions, and radiative opacity—struggle to effectively account for complex plasma environmental effects. This paper systematically reviews the theoretical advances related to microscopic atomic processes in dense plasmas, as well as the theoretical challenges posed by recent experimental results. We introduce the self-consistent finite-temperature ion-sphere (SCFTIS) screening model developed by our group, which incorporates microscopic electron spatial distributions and nonideal effects, and validate the accuracy of this model against experimental measurements of IPD under warm/hot dense conditions. Beyond the extensively studied plasma screening effects, we propose the concept of transient spatial localization of continuum electrons (TSLCE) in atomic processes. Building upon this concept, we have established an atomic collision theory that accounts for TSLCE and plasma screening and applied it to investigate photoionization, electron-impact ionization and excitation, and Auger decay processes in dense plasmas. Our findings indicate that for atomic processes occurring in dense plasma environments, the cross-sections of these microscopic processes typically decrease when only plasma screening effects are considered. However, when the TSLCE is further incorporated, the cross-sections for continuum atomic processes—such as photoionization, electron-impact ionization, and excitation—as well as Auger decay rates, exhibit a pronounced increase with elevated plasma density. These findings provide valuable insights for understanding and interpreting relevant experimental anomalies, such as the iron plasma opacity measured at the Z-pinch facility being higher than theoretical predictions. This work is expected to advance the fundamental research of microscopic atomic processes and macroscopic physical properties in warm/hot dense plasmas, thereby supplying more precise parameters for plasma diagnostics and physical modeling.