As the name implies it's basically CHDs (Compressed Hunks of Data) are typically any type of "rotating media" of the day, like a CD/DVD/Laser Disc/Hard Disk. Basically an image that is used along with the ROMs. I think the MAME core folks developed the CHD format.

They are just games that have more detailed graphics, more audio, better processing, better whatever...streaming graphics, streaming audio, etc. requiring more space than a ROM chip can hold. I think Killer Instinct used FMVs (one of the 1st?) and Carnevil streams a good amount of the game as it was digitized footage. I imagine it's more about a particular games "demands/requirements" and less about it being CHD based. I don't think the overhead of accessing the image alone is making it "unplayable".