How do you use mipmaps?

There's not a clear an fixed answer to this question because it's always depends on the project itself.

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The general rule is as following:

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You need Mipmaps if...

Your asset might have a different level of details rendered on a screen at the same time. For example, if you got some generic props for the background that are repeated at many places in the screen (close to the camera as well as far from it), those asset will require mipmaps if you want to optimize the amount of memory used per-asset as well avoiding pixel artifacts when the rendering pipeline is forced to cut out 2/3 of the pixels of the texture as the asset is way too far in the background for it to display every details on its surface. You might also need mipmaps if you use any kind of LOD that uses the same texture between each layer of LOD.

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You don't need Mipmaps if...

If your assets are always displayed from the same range and you don't allow the player to zoom in. This is the case for games like 2.5D isometric view games (like Diablo-style) in which the player can't zoom-in and might also be the case of some of the assets in a game with very limited depth visibility such as a a game focused on sidescrolling for its movement. A game like Little Nightmares doesn't need mipmaps for example because the level of details between the background assets and the forth assets doesn't really maters as it's mostly the same due to the game limited depth interactivity (meaning you mostly move on a 2 axis with limited depth-based movement toward the Z axis) In such cases, you need to control the source files directly by testing and attributing the right resolution to the assets' texture and settings. (In those case, the trick is usually to start with a 2K texture and, in Unity, drop the Max Size of the texture until it gets too ugly from the actual gameplay camera view. It's not rare that you can drop by half or even at a 1/4 a couple of textures as the impact is almost not noticeable unless you know about it. When you build the game built, the textures will get resized automatically based on the Max Size setting.)

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The rule is usually a per-asset rule meaning that you got to think the same question for each texture. For example, if you're making a Metroidvanilla styled game where you can have a far-off view in the background that includes assets (such as rocks or trees) you also use close to the camera, those will mostly require mipmaps. On the other hand, if you got some walls and some props (like animated doors) that never appears far from the camera (like the assets used in a part underground), those don't need mipmaps at all and you should avoid those at all cost! Another example in a more mainstream kind of game would be a FPS. Your player's arms which mostly floats in the air... as well as your player model (if unique) doesn't need any mipmaps. They are only seen from up close so you don't need to allow the engine to waste any resources that would allow it to display a less-then-required level of details. Enemies that might appears over 100m away will requires mipmaps.

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Now, one of the most asked question is about how to avoid mipmaps to look ugly. There are multiple possibles reasons for a mipmaps to look ugly or visually create artifacts on the textures.

1. The mipmaps settings are wrong. Obviously, if the settings are wrongs, the result will be wrong.

2. The model's UVs aren't properly set. This is the less obvious part that might make you hate yourself now and then. The general rule for the UVs of the model to be properly setup with mipmaps is to avoid having UV seams anywhere near important details in the model's texture. If you got some emissive bits on your model, makes sure there are no seams close to those emissive bits. Otherwise, you might be forced to turn mipmaps off from the emissive texture as it will make the seams visible from a mile away once the mipmaps kicks in.

3. Use clamp and avoid repeat wrap mode. Repeat wrap mode is basically when you need the texture to loop so that you can use extend and use the same part of the texture multiple times through its UVs. For example, a fence's texture might use Repeat Wrap mode to allow a relatively high level of details while keeping the texture size small. Such things works really badly with the mipmaps as the Repeat wrap Mode might generate artifacts in the alpha channel which end up displaying seams in-between the tiled texture. For such things, instead, you should use a Clamp Wrap mode and, in the model and its UVs, manually set the faces/vertex so that it repeat within the UVs bounds.