The Chip RAM is the RAM in the Amiga to which the custom chips have access. So, any data which needs to be accessed by the custom chips (graphics data, copperlists, sound samples, and so on) must be in Chip RAM.
Fast RAM can only be accessed by the CPU (and so is faster because the other chips aren't vying for access). You can still store graphics and sound in it, but they must be transferred to Chip RAM before the custom chips can access them.
The maximum Chip RAM that any real Amiga can have is 2MB (I think there's an option in UAE to have more). You can have an Amiga with only Chip RAM (like the stock A1200 or A600). You can't have one with only Fast RAM.