The hypno-chip is a diabolical device created by the evil scientist Dr. Arkeville which, when inserted either onto or under the skin behind the ear, takes over of a subject's mind via computer control.
The Transformers cartoon
Dr. Arkeville struck up a partnership with Megatron in a quest to take over Earth using the doctor's hypno-chips. The hypno-chip's power was first tested on Sparkplug Witwicky, captured by the Decepticons during "Operation Guinea Pig". When implanted, the hypno-chip took over Sparkplug's mind, making him aggressive and violent towards the Autobots and even his own son, Spike.
After the successful test, the Decepticons kidnapped several humans and Dr. Arkeville implanted hypno-chips in all of them. This small army of human slaves were tasked to collect energy for transport to Cybertron. They were also forced by Megatron to attack the Autobots.
The hypno-chip tended to fail when its signal was interrupted by bio-feedback from the subject, or from audio disruptor waves like those generated by Soundwave. However, modifications made to the chip or the control signal brought the human subject back under control.
Using information stolen from Decepticon headquarters on Cybertron, Wheeljack was able to create a device that permanently counteracted the hypno-chip's effect. After it was successfully tested on Sparkplug during a rescue operation, the Autobots used the device to free Megatron's army of human slaves back on earth.