Basics of the Chao
To get into Chao world during story mode, you must break open one of the three chao boxes that are in each level. The first Chao box with contain a key. If you collect this key, when you finish the level you're on, you will be sent to Chao World. However, if you break open the second or third Chao box after already obtaining the key, you will find animals. These animals can be givin to your Chao. (See animal page for more information about animals)
Hatching
I still haven't figured out why so many people have asked "How do I hatch the Chao eggs in my Chao garden??!" Well, here are the three ways.
Rocking - When you pick up your Chao Egg with B, don't let go of it. Instead, hold down B when you've picked up the Egg, and move the analog stick to the left or right (Or any other direction for that matter). This is a common way to hatch your Chao without hurting it. I'd recommend this way to do so.
Throwing - When you pick up your Chao egg, and move around with it, or jump with it in your hands, there will be an option to throw it by pressing B. Throwing the Egg should crack it open, but could make your Chao not like you, or anyone for that matter. There is also a possibility of it not Reincarnating. This is the worst way to hatch a Chao.
Waiting - If you have patience, and aren't in any hurry to get a Chao, then this could be the way for you. If you stay in the Chao garden with an egg that is un-hatched, it might hatch on its own. This won't be a quick matter though. Letting it hatch on its own is like watching paint dry. Nothing hapends, not much excitement, period. I wouldn't recommend this method of Hatching Chao eggs.
Feeding
You've probably noticed the little orange spheres in your Chao garden by now, huh? Well, if you haven't figured it out by now, they're nuts for your Chao to eat. These nuts grow from the trees and fall on they're own, so you don't need to do much. To feed your Chao these nuts, go up to one and pick it up by pressing B. Then, walk over to the Chao you want to feed it to. Your character will automaticly drop it into the Chao's arms, and the Chao will start eating it. When eaten, these nuts raise the Chao's stamina stat. The more nuts your Chao eats, the higher his/her stamina will be. There are also fruits you can purchase from the Black Market. (See Chao Kindergarden) Some of these fruits will give your Chao more than just stamina. Some can even influence what they evolve into. (See Evolution)
Mating
You will know when a Chao is ready to mate when he/she sits down and a ring of flowers grows around them. When this hapends, pickup another one of your Chao and place him/her in the ring of flowers aswell. They will do a ittle dance, rub noses, and jump backwards, revealing a new Egg. This egg will have a Chao inside. The Chao's color will be determind by the two parents that layed it. For example. If you had a Green Chao mate with a normal Chao, the Chao would most likely be Green.