In those days, memory and storage space were limited and valuable, and so sometimes people needed to create tunes that took up very little space. Composers started to create very small music modules, using as little data as possible to create a sound; for example, repeatedly looping 64 bytes of data to produce a constant tone. These were mostly used in crack intros, which have to be squeezed into any spare space on the disk of the cracked software.
These small modules became known as Chiptunes.
The term "chiptunes" comes from the previous usage of the term to refer to module formats where all the sounds are synthesised in realtime, instead of being sample based. Early computer sound chips, such as the ones on the Commodore 64 computer and early video game consoles, had only simple tone generators and noise generators. The technique of chiptunes with samples synthesized at runtime continued to be popular even on machines with full sample playback capability; because the description of an instrument takes much less space than a raw sample, these formats created very small files, and because the parameters of synthesis could be varied over the course of a composition, they could contain deeper musical expression than a purely sample-based format.
The standard MIDI file format, together with the General MIDI instrument set, describes only what notes are played on what instruments. Whether or not a MIDI file counts as a chiptune is in question.