Chip is, as the name describes it, a yellow potato chip. Its shape resembles that of Pringles chips, with the color bearing a slight resemblance to that of classic Lay's chips.
Role in episode
After SpongeBob decides to live indoors forever, he chooses Chip as one of his new indoor friends, the others being Penny and Used Napkin. SpongeBob flings chip at the door to escort Sandy and Patrick out, somehow opening the door. Patrick thanks Chip before leaving.
Before SpongeBob goes outside to save Sandy and Patrick from the gorilla attacking them, he tells Chip to take good care of Gary, who then eats Chip.