The Chameleon Arch was a piece of Time Lord technology, which could modify the biology of a Gallifreyan so the cells registered as another species. The procedure was very painful. It was composed of a headset and a fob watch-like device, with an added perception filter, used to store the Gallifreyan biological information. (DW: Human Nature / The Family of Blood)
Function
The Chameleon Arch changed every cell in the user's body. However some traits of the user's true Time Lord heritage remained, such as when John Smith was able to deliberately cause a complex chain reaction to save a mother and her baby from being crushed by a piano. Smith also kept a dream journal in which he chronicled memories of the Doctor's adventures, while Professor Yana heard drums beating in his head all his life, and both Smith and Yana possessed great intellects. (DW: Human Nature / The Family of Blood)
Notable uses
The Doctor used a chameleon arch to change himself into the Human, John Smith, in order to elude the Family of Blood. (DW: Human Nature / The Family of Blood)
The Master also used the Arch to turn into a Human to escape the Last Great Time War, and remained in Human form until he opened the watch and remembered who he was. (DW: Utopia)
There was another account suggesting the Doctor, prior to his regeneration into his eighth incarnation, made use of an Arch to create the fiction that he was half-Human, to use against the Master. (IDW: The Forgotten, referencing events depicted in Doctor Who)
It was also used to help the Doctor recover his memories, after his mind was taken over by Es'Cartress of the Tactire. (IDW: The Forgotten)
The Doctor also briefly considered that Jackson Lake might be a future incarnation of himself under the influence of an Arch. Lake did possess what turned out to be just an ordinary fob watch. His initials at the bottom revealed his identity to himself and to the Doctor. (DW: The Next Doctor)
Known Chameleon Arches
There were only two known Chameleon Arches left in the universe. One belonged to the Doctor inside his TARDIS, though he gave the fobwatch to Timothy Latimer. The other was in the possession of The Master before he left the end of the universe to the 21st century. (DW: Human Nature, Utopia)