What are chip and pin machines used for?

The simplest system - is on your ATM card. When you insert your card into an ATM - the system reads the data stored on the chip. It then matches that data with the central computer - so it knows what PIN should be entered. If you enter the correct PIN, you can proceed to withdraw cash - if the PIN is wrong - you get another two attempts, before the machine retains your card.

Using a chip & PIN card in a shop to buy goods - the system is the same as an ATM. The difference is - if you fail to enter the correct PIN three times, the system simply disables your card - and you have to order a new one !