The emotion chip was a device designed by Dr. Noonian Soong to allow his creation Data to experience Human emotions. Soong finished the chip in 2366 after twenty years of work, and summoned Data to his lab on Terlina III to install it. However, Lore also arrived at the same time, and stole the chip by masquerading as Data. (TNG: "Brothers")
In 2369, Lore used the emotion chip to trigger certain negative emotions in Data over a carrier wave, seeking to turn Data to his side by luring him away from his friends with the promise of experiencing additional emotions. Lore's scheme failed after USS Enterprise-D personnel reactivated Data's ethical program; Lore had been keeping Data under control by deactivating the ethical program and only sending him negative emotions, causing him to focus on the negative emotional consequences of his interaction with his shipmates rather than the positive, but by restoring his ethical program Data was able to make the ethical choice to spare his friends. The chip was removed from Lore after he was dismantled, but Data did not install it, both because the chip was damaged after he had fired on Lore and because he believed it to be too dangerous after what had happened, although Lieutenant Commander Geordi La Forge prevented Data from destroying it as he didn't want Data to abandon his dream of experiencing emotions. Lore had revealed that the chip also contained memories from Data's early days at Omicron Theta. (TNG: "Descent, Part II")
Data finally installed the chip- apparently repaired- in 2371, to further his growth as an artificial lifeform, Data's initial emotion being disgust at a foul-tasting drink followed by joy at the emotional response. Unfortunately, the chip overloaded his positronic relays, causing him to experience erratic emotions, such as focusing on his sense of humour when in the middle of an analysis of a deserted space station and being subsequently overwhelmed by fear in a firefight. The chip also became fused to his neural net, making it impossible to remove. Data was eventually able to control the emotions. (Star Trek Generations)
By 2373, Data was able to turn the emotion chip on and off at will. The Borg Queen activated the chip during their effort to assimilate Earth in an unsuccessful attempt to use Data's emotions to manipulate him. (Star Trek: First Contact) A way was eventually found to remove the chip, and Data left the chip behind on the USS Enterprise-E prior to his mission to Ba'ku in 2375. (Star Trek: Insurrection)
The fate of the emotion chip is unknown, but it may have been destroyed when Data was killed in Star Trek Nemesis. However, a deleted scene included in the two disc Special Edition had Lt. Commander Geordi La Forge and Lt. Commander Worf going to Data's quarters to remove some of his items near the end of the film. La Forge took Data's emotion chip and Worf took Spot, Data's cat.
The novelization for Nemesis states that the Borg Queen's tampering with the chip and Data's circuitry in First Contact led to its destruction. In the 9-part A Time to... series of books, which take place during the year leading up to Nemesis, Starfleet Command ordered the Starfleet Corps of Engineers to forcibly remove Data's emotion chip following events at Rashanar.
The comic book series Star Trek: Countdown (a tie-in to the 2009 Star Trek film) and the timeline established for the Star Trek Online game establish that sometime prior to 2387, Geordi La Forge installed Data's emotion chip into B-4's neural net. This caused the uploads to B-4 by Data to fully reactivate, allowing Data's full memory and personality to assert itself, essentially resurrecting him. Starfleet decided to reinstate the android to service, and by 2387 Data had become captain of the USS Enterprise-E.