Wavelength division multiplexing (WDM) technology together with optical amplification has created a new era for optical communication. Transmission capacity is greatly increased by adding more and more wavelength channels into a single fiber, as well as by increasing the line rate of each channel. WDM not only can be used to increase transmission capacity, but also to introduce a new dimension to design and implement flexible, reliable, cost effective optical networks. Optical signals may pass through several nodes in the optical network without being terminated and converted into an electrical signal. The impairments from the subsystems in an optical network, such as interferometric crosstalk, filtering effect, dispersion in optical components, fiber dispersion and non-linearity, will accumulate and degrade the signal, hence limit the size of the network. Therefore, the study of these impairments and their influence in a cascade of subsystems is very important. In this Ph.D. thesis, several important subsystems are investigated theoretically and experimentally. Useful tools are developed to study the cascadability of subsystems. A crosstalk model is developed to estimate the influence of interferometric crosstalk; the model has been used in calculation of the possible size of wavelength routing networks using arrayed-waveguide-grating (AWG) routers, and in calculation of the number of wavelengths that can be handled in a new 2×2 multiwavelength cross connect. A method to measure dispersion in optical components is proposed and used to characterize an optical add/drop multiplexer. A fiber re-circulating loop set-up is upgraded to support multiple channels. It has been used to experimentally investigate the cascadability of AWG routers, 10Gb/s wavelength converters based on cross gain modulation in semiconductor optical amplifiers (SOAs), and dispersion managed fiber sections. New subsystems are also proposed in the thesis: a modular 2×2 multiwavelength cross-connect using wavelength switching blocks, a wavelength converter based on cross phase modulation in a semiconductor modulator, a wavelength selectable light source using DFB fiber lasers and a single shared pump, an interferometric crosstalk suppressor using a saturated SOA, and a simple chirped return-to-zero transmitter. The thesis consists of a summary and 20 accompanying papers related to the investigation. Some detailed theoretical derivations not included in the papers are added in the Appendices.