Chips are very small pieces of wood that are great for small, quick bursts of smoke. Chips, even soaked in water, will burn up pretty fast, create smoke, and then disappear. If you are not smoking for a very long period of time, or if you only want a small amount of smoke flavor, then go with chips. Make sure you have read the instructions for your smoker. Some electric and gas smokers are designed to only handle wood chips. You won't want to use chunks with these units.
Chunks, on the other hand, are large pieces of hardwood. Usually less than 2 inches, these pieces are best for creating smoke over a longer period of time. If you are smoking for a while, then it’s best to use chunks. You’ll get more smoke and you will get it over a longer period of time without having to run out and add more every 30 minutes. Be sure to check whether your smoker can use wood chunks.