Dwarf galaxy satellites, in particular the satellites of the Milky Way
and M31, have become the testbed of the cold dark matter model at small
scales. The missing satellites problem still remains one of the major
challenges that the theory is facing. A proper study of the formation
and evolution of satellites in galaxy halos, however, requires
cosmological hydrodynamical simulations having a resolution that is
just starting to become achievable. In the meantime, detailed
N-Body+SPH simulations of individual dwarf galaxies evolving within the
primary halo remain the best tool to understand the origin of the
present-day population of satellites.  Here we review a number of
works showing how tidal stripping, tidally induced dynamical
instabilities, ram pressure stripping and the cosmic ionizing background
combine to explain the morphology-density relation, the kinematics,
the morphology, gas content, mass-to-light ratios and star formation
histories of known dwarf spheroidal satellites within hierachical
structure formation. The redshift of infall of the satellites within
the primary halo is a crucial parameter determing many of the final
properties of the satellites. The accurate determination of their
orbits will allow to test our model. We end by dicussing the
implications of such environmentally driven evolution on the missing
satellites problem.