Actually, the "chair's letter" is not only important, it's actually REQUIRED at many programs. Check out each program's website for details. Some require two letters of recommendation plus a chair's letter, others require only 3 letters, and places like Hopkins actually require a total of four! The chair's letter doesn't necessarily have to be from the chair either...it can be from a "departmental designee" who's appointed to write these letters. Basically, it's a way to standardize things so there's one person at each school commenting on all medicine applicants who've rotated through their department.
At my school, anyone applying in medicine is required to meet with the Chair, and he looks over our CV, personal statement, transcript, etc., and then writes a letter for each of us. It's also based on evaluations from the medicine clerkship and your sub-I, which are typically given by members of the department whom the Chair knows and trusts, hence he can get a good feel for what type of letter to write.
