Don't worry, I was there, too.
http://www.imperial-library.info/content/personal-question-about-chim
CHIM is a state of being that exists above pretty much everything.
It is obtained when one realizes that everything is the dream of the godhead, and thus the realization that everything is connected to everything else via the dream, and thus nothing is by itself, or an individual.
After realizing that you are everything, and everything is you, via the dream of the godhead, one then stands up and proclaims I AM, that you are still who you are, an individual, despite the realization that you aren't anything.
When one finds CHIM they can alter the world to their pleasing, they can bring themselves back to life after death, and they, in simple terms, gain access to the construction kit.
In a nutshell, it was supposed to give a lore-based explanation for things like modding Morrowind.
You have god-powers to make things like that happen. Like mods.