Mitty is a meek, mild man with a vivid fantasy life: in a few dozen paragraphs he imagines himself a wartime pilot, an emergency-room surgeon, and a devil-may-care killer. The character's name has come into more general use to refer to an ineffectual dreamer, appearing in several dictionaries. The American Heritage Dictionary defines a Walter Mitty as "an ordinary, often ineffectual person who indulges in fantastic daydreams of personal triumphs". The most famous of Thurber's inept male protagonists, the character is considered "the archetype for dreamy, hapless, Thurber Man".

Although the story has humorous elements, there is a darker and more significant message underlying the text, leading to a more tragic interpretation of the Mitty character. Even in his heroic daydreams, Mitty does not triumph, several fantasies being interrupted before the final one sees Mitty dying bravely in front of a firing squad. In the brief snatches of reality that punctuate Mitty's fantasies we meet well-meaning but insensitive strangers who inadvertently rob Mitty of some of his remaining dignity.

When referencing actor Errol Flynn, Warner Brothers studio head, Jack Warner, noted in his autobiography, My First Hundred Years in Hollywood, "To the Walter Mittys of the world he [Flynn] was all the heroes in one magnificent, sexy, animal package".

In his 1992 biography of Henry Kissinger, Walter Isaacson records that on 6 October 1973, during the 1973 Arab Israeli War, Kissinger urged President Richard Nixon's Chief of Staff General Alexander Haig to keep Nixon in Florida in order to avoid "any hysterical moves" and to "keep any Walter Mitty tendencies under control".

In the 1997 text Into Thin Air by Jon Krakauer—where the author personally recounted the events of the 1996 Everest disaster—Krakauer states: "Walter Mittys with Everest dreams need to bear in mind that when things go wrong up in the death zone (above 26,000 feet)—and sooner or later they always do—the strongest guides in the world may be powerless to save a client's life; indeed as the events of 1996 demonstrated , the strongest guides in the world are sometimes powerless to save even their own lives."

In 2003, Tom Kelly, a spokesman for British prime minister Tony Blair, publicly apologised for referring to David Kelly as "a Walter Mitty character" during a private discussion with a journalist.

In 2007, Automaker Ford admitted that it had to exclude from the list of potential bidders "Walter Mitty" types who had dreams but no experience, prior to the sale of their Aston Martin British GT car brand to a consortium of business interests from America and the Middle East, headed by Prodrive founder and world rally championship owner David Richards.

The Guardian newspaper reported on 20 April 2009 that a leaked British National Party training manual described some members as "liars oddballs and Walter Mitty types".

Also, there is a military slang term, "Walt", which is an abbreviation of the name 'Walter Mitty', which refers to someone who has aspirations to become a soldier, but none of the necessary personal qualities. This slang can also refer to someone who poses as an (ex-)soldier but who isn't a soldier (serving or former), or who poses as something he isn't or wasn't; for example, regular army soldiers who pose as SAS troopers. The term is sometimes used to describe a small minority of individuals who participate in 'wargames' such as Airsoft, Paintball, Military Re-enactment, and millitaria/weapon collecting that, unlike the majority of their fellow hobbyists, do not recognise that what they do for a hobby does not compare to military service.[dubious – discuss]

In his book on selection for the Special Air Service (SAS), Andy McNab wrote that people who give away the fact that they want to be in the SAS for reasons of personal vanity are labelled as 'Walter Mitties' and are quietly sent home.