That's part of it, but you can also add a lot of area under the curve by altering the mixture. Modern cars run really rich because the engineers use the unburned fuel to cool the catalytic converters to prolong their lives. For a well-optimized factory setup, it's tough to add much peak power with a chip - most of the gain is just area under the curve. When you make other changes like less restrictive intake and exhaust, or change rear end gears or add an underdrive pulley the chip becomes more useful because you can compensate for those mods.marlinspike said:
With modern computer-controlled transmissions, chips can also be used to firm up the shifts like a shift kit. You can also use it to change shift points.