Functional magnetic resonance imaging (fMRI) is recently developing as imaging modality used for mapping hemodynamics of neuronal and motor event related tissue blood oxygen level dependence (BOLD) in terms of brain activation. Image processing is performed by segmentation and registration methods. Segmentation algorithms provide brain surface-based analysis, automated anatomical labeling of cortical fields in magnetic resonance data sets based on oxygen metabolic state. Registration algorithms provide geometric features using two or more imaging modalities to assure clinically useful neuronal and motor information of brain activation. This review article summarizes the physiological basis of fMRI signal, its origin, contrast enhancement, physical factors, anatomical labeling by segmentation, registration approaches with examples of visual and motor activity in brain. Latest developments are reviewed for clinical applications of fMRI along with other different neurophysiological and imaging modalities.