The microwave drying of sewage sludge is characterized by its speed and safety. A novel method for identifying free and bound water is proposed in this study. Experiments were performed to investigate the process performance and energy consumption in a microwave drying unit. The results indicate that the microwave drying process can be described in three stages, i.e., the preheating stage, constant-rate stage, and decreasing-rate stage. The preheating and constant-rate stages mainly remove free water, while the decreasing-rate stage mainly removes bound water. The Linear model effectively describes the kinetic processes in the constant-rate stage, and the modified Page I model is suitable for describing the decreasing-rate stage. The energy conversion process in microwave drying is explored, revealing that heat efficiency and energy consumption are consistent with microwave power changes. The heat efficiency in the constant-rate drying stage ranges from 60.33% to 71.01%, lower than that in the preheating stage but higher than that in the decreasing-rate stage. Energy consumption in the constant-rate stage ranges from 3.84 kJ/g to 8.20 kJ/g, significantly lower than in the other two stages. These results provide fundamental data for the industrial application of microwave drying of sludge and contribute to the advancement of microwave drying technology.