Due to the rapid development of the textile industry and increased consumption of various textiles composed of both synthetic and natural fibers, large amounts of textile waste are produced, leading to environmental and economic problems on a global scale. Turning textile waste into carbon materials that can be used in a broad range of applications has become a viable solution to address this challenge in terms of sustainability and value generation. Natural and synthetic textile fibers have distinctive molecular structures with relatively high carbon content and variable chemical functionality; therefore, they have been identified as highly promising precursors for fabricating carbon materials with various electrochemical and environmental applications. At the same time, the properties of carbonized and activated textile fibers are strongly dependent on the molecular transformations taking place during thermal treatment and functionalization of textile fibers. This review will provide a comprehensive overview of the molecular evolution of natural and synthetic textile fibers during carbonization and activation processes in terms of dehydration, depolymerization, aromatization, heteroatom preservation, and graphitization mechanisms. The effect of precursor chemical composition, pyrolysis conditions, activation process, and heteroatom incorporation on the structure of carbonized and activated textile fibers and their physical and electrochemical properties will be analyzed. Particular emphasis is placed on electrochemical applications, including capacitive deionization, supercapacitors, electrocatalysis, and emerging smart electrochemical textile systems, highlighting how molecular transformation, pore engineering, and surface chemistry govern charge storage, ion adsorption, and catalytic behavior. In addition, major characterization techniques such as Raman spectroscopy, X-ray diffraction, X-ray photoelectron spectroscopy, and Brunauer–Emmett–Teller surface area analysis will be reviewed and discussed in relation to understanding the interdependence between molecular structure and material properties. Finally, recent issues related to feedstock heterogeneity, scalability, energy efficiency, and sustainability of processing are highlighted, and future perspectives on multifunctional carbon structures and circular utilization of textile waste are discussed.