In lay mans terms it is a very small chip that is inserted under the skin of the dog/ pup on the neck upper side. It has a number that can help in tracking/ getting the full details of the dog. There is a special device/ instrument that can detect the chip and its number to get details from the database at KCI. These chips in India are given by the KCI to KCI registered dogs only. KCI is the Kennel Club of India and you can go to its website to get further information.
If your dog gets lost, and is microchiped, then someone who knows about microchips can scan it and see if it has one and then accordingly get your details and contact you.