Non-healing or chronic wounds in extremities that lead to amputations in patients with Type II diabetes (hyperglycemia) are among the most serious and common health problems in the modern world. Over the past decade, more efficient solutions for diabetic ulcers have been developed. Nanofibers and/or composite materials capable of drug delivery, moisture control, and antibacterial effectiveness are increasingly utilized in the formulation of wound dressings, with a particular focus on the biofunctionalization of polymeric and hydrogel materials. Natural products, including plant extracts, honey, antibacterial agents, nanozymes, and metal nanoparticles, are now commonly and effectively implemented to enhance the functionality of wound dressings. Due to the complicated and dysfunctional physiological structure of the chronic wound sites in the extremities of diabetic patients, formulated nanoscaffold or hydrogel components are becoming more intricate and versatile. This study aimed to investigate the development of wound dressing materials over the years while demonstrating their progressively enhanced complexity in effectively targeting, treating, and managing chronic wounds. The mechanisms of action and bio-functionality of wound dressing technologies were elucidated based on findings from 290 studies conducted over the last decade. A notable observation that emerged from these studies is the evolution of wound dressing development technology, which has led to significant advancements in the operational range of smart systems. These include, but are not limited to, self-healing, self-oxygenation, and adaptable mimicry of human tissue.