Microsoft Compressed HTML Help is a proprietary format for online help files. They have a set of web pages written in a subset of HTML and a hyperlinked table of contents. CHM format is optimized for reading, as files are heavily indexed. All files are compressed together with LZX compression. Most CHM browsers display a table of contents on the left.
A CHM help file has a ".chm" or ".CHM" extension and is often referred to as a "chum" file. The file starts with bytes "ITSF" (in ASCII), for "Info-Tech Storage Format". The format has been partially reverse engineered and there are container and internal files specifications available.
There are some open source tools which can read and explore these files (see for example xCHM or GnoCHM), but they lack various features of the Microsoft Windows tools.
HTML Help files are made with help authoring tools such as PowerCHM, HTML Help Workshop or Vizacc Help Maker.
Microsoft Compressed HTML Help is more complex than Microsoft WinHelp, which is based on Rich Text Format.
For more information go to HTML Help Web Page on MSDN:
http://msdn.microsoft.com/library/en-us/htmlhelp/html/hworiHTMLHelpStartPage.asp
Advantages:
file size smaller than plain HTML
range of formatting options that HTML gives for text presentation
ability to search the full text
ability to assemble several CHM files into one file with common TOC.
Applications:
This format was originally intended only for encoding help files, but other uses have since been found. It is very handy for packing saved HTML pages in one compact and browsable archive and for creating compact ebooks. Some people use it to keep personal notes, because it can organize them in an ordered hierarchical table and allows quick text searching.