What is a Chibi?

A Chibi character is a short, chubby resized anime character.
and chibi character may naturally resemble a super-deformed 
character, where the entire body has a smaller, squashed, 
cuter appearance.
In general a chibi is a very cute and very silly drawn anime
character.

And to end the explanation:
"chibi" the japanese word, just means "small/little".
Here is an example of a chibi and a normal anime-character.

Chibi    Anime

Thanks to Gnarf and Kasimir for the help with the info.