Spatial reasoning, the ability to represent and reason about spatial relations, geometry, topology, and embodied environments, is increasingly vital for evaluating and deploying large language models (LLMs) and vision–language models (VLMs). While multimodal foundation models show strong performance on spatial benchmarks, navigation, and embodied planning, much of this stems from shallow pattern matching rather than grounded spatial understanding. This review offers a comprehensive, framework-driven analysis of spatial reasoning in LLMs and VLMs, covering tasks, representations, datasets, benchmarks, architectures, training, and failure modes. We also link spatial reasoning to embodied AI, emphasizing challenges in generalization, compositionality, and grounding. Our survey unifies diverse fields, NLP, vision, robotics, and cognitive science, to guide the development of truly spatially grounded foundation models.