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In WDM optical networks, the physical layer impairments (PLIs) and their significance depend on network type-opaque, translucent, or transparent; the reach-access, metro, or core/long-haul; the number and type of network elements-fiber, wavelengths, amplifiers, switching elements, etc.; and the type of applications-real-time, non-real time, missioncritical, etc. In transparent optical networks, PLIs incurred by non-ideal optical transmission media accumulate along an optical path, and the overall effect determines the feasibility of the lightpaths. If the received signal quality is not within the receiver sensitivity threshold, the receiver may not be able to correctly detect the optical signal and this may result in high bit-error rates. Hence, it is important to understand various PLIs and their effect on optical feasibility, analytical models, and monitoring and mitigation techniques. Introducing optical transparency in the physical layer on one hand leads to a dynamic, flexible optical layer with the possibility of adding intelligence such as optical performance monitoring, fault management, etc. On the other hand, transparency reduces the possibility of client layer interaction with the optical layer at intermediate nodes along the path. This has an impact on network design, planning, control, and management. Hence, it is important to understand the techniques that provide PLI information to the control plane protocols and that use this information efficiently to compute feasible routes and wavelengths. The purpose of this article is to provide a comprehensive survey of various PLIs, their effects, and the available modeling and mitigation techniques. We then present a comprehensive survey of various PLI-aware network design techniques, regenerator placement algorithms, routing and wavelength assignment algorithms, and PLI-aware failure recovery algorithms. Furthermore, we identify several important research issues that need to be addressed to realize dynamical- ly reconfigurable next-generation optical networks. We also argue the need for PLI-aware control plane protocol extensions and present several interesting issues that need to be considered in order for these extensions to be deployed in real-world networks.