As mentioned above, many IM programs "require" a chair letter because it is a mini-dean's letter. It has nothing to do with "working with the chair", it's usually written by a committee, documents your performance in comparison to other people applying in IM. I think it's a bit of a holdover from the days where the MSPE release was delayed much later. In fact, there are published guidelines about the DoM letter, you can see the short version here:
http://www.im.org/p/cm/ld/fid=555 or the longer, published version here:
http://www.im.org/d/do/3126
All that said, this really applies to MD candidates only. Although lots of DO candidates submit a "chair" letter, my experience is that they are 100% useless. It appears that DO schools haven't gotten the memo regarding how this is done, and instead we get a form letter, written by the chair, that says nothing useful.
So, as a DO, much more valuable (as mentioned above) is a letter from an allopathic rotation. Although not a requirement, having a letter from a rotation where you were held to the same standards as an MD student is a big plus. And if it's a SubI, it's a huge plus. If it's actually written by a PD or APD that's also a big help, although that can be out of your control and is less important.
Whether or not you label your letter a "chair" letter in ERAS is relatively meaningless. But don't label all of your letters as "chair" letters (that's annoying), and don't label a letter a "chair" letter if the person writing it is the Chair of something that isn't IM.