This chapter deals with a theoretical description of the phase morphology development of immiscible polymer blends during their melt mixing and processing. It also deals with theories of the phase structure formed during melt mixing of polymers. The chapter focuses on the effect of a compatibilizer on droplet breakup and coalescence in flow, on the competition between breakup and coalescence, and on the changes in the blend morphology at rest. Prediction of the type of morphology in polymer blends containing three or more immiscible components is a more complicated task than the prediction for binary blends. Droplet breakup is a decisive event in the formation of morphology. Its understanding and proper description are necessary conditions for the derivation of a theory of droplet size in immiscible polymer blends. Instantaneous morphology of a polymer blend affects the flow fields during mixing and processing, and the amount of dissipated energy and, consequently, temperature profile in the sample.