It is tempting to speculate that the term, first appearing in 1947, may have originated from the fictional character Mr. Chad who appeared, complaining about food shortages, in graffiti in England at the end of World War II. Perhaps Mr. Chad happened to be in the public imagination just at the time when computer scientistss were searching for a new word to name their paper confetti. However, there is no evidence for this etymology.
Another theory revolves around the Chadless punch, purportedly named after its inventor. The Chadless punch makes a U shaped cut and folds the excess over. It then stands to reason that if the Chadless punch does not produce scraps, the scraps must be called chads.
Chads were made famous in the highly contentious 2000 presidential election in the United States, where a majority in the U.S. Electoral College was determined in Florida by the counting of punch card ballots. Voters leaving incompletely-punched holes resulted in so-called "hanging chads" where one or two corners were still attached, or "dimpled chads" (also known as "pregnant chads") where three or four corners were still attached.
Chads are actually a normally more mundane and everyday occurrence, every time a person uses a hole punch of any functional or decorative sort produces the paper displaced by the punch - a chad. Chads are also common in any store, where the holes are punched so that merchandise can be hung on pegs or clip strips.
Likewise, chads can also be the result of punching holes in any sort of thin material, such as fabric, plastic, or even sheet metal.