CHD (compressed hunks of data) They represent a CD DVD or hard drive.

Now for most items in MAME you will need both some ROMs and CHDs. The ROMs usually in that case are the firmware of the device that loads up the CHD. The arcade platforms basically ended up being fairly beefy PCs or in some cases retooled game consoles.

At one point the ROMs for those devices were split out into their own torrent. They usually represent something like an playstation. With the CHDs being the CDs. It is also used in places like the Atari platform that runs some of its hardware that has basically different hard drives and some roms to switch out the board being the same between all the arcade games. It is also used for laserdisc games but those probably will change in the next few years as the doomsday project gets its preservation setup the way they want it. In the laserdisc game it would represent the console the arcade game used to load up the disc.

Many of the emus out there are adopting the CHD format for CD/DVD support.

CHD's also represent optical media, not just HDD's. For example the SEGA NAOMI arcade hardware was based on the Dreamcast. As such, GD-ROM was one medium for games. the GD-ROMs are dumped as CHD's.

Basically hdd arcade games are PCs or similar (occasionally customized console hardware) with HDDs attached.

Pretty much anything made post 2002 is that. It started a few years earlier tho.

Before that: custom roms (or at least some custom Roms on standard arcade platform hardware for that company)

Famously games like Dragon's Lair from the 90s require a CHD for all of the full motion video.

Yeah, they’re originally laserdiscs so a bit of a special case, but same basic idea.

However it famously doesn’t support Dragons Lair! Not properly (it can play the video but that’s about it). Tho work has been ongoing.

Daphne is the only emulator of Dragons Lair I know of

While MAME does support some Laserdisc-based games - Firefox, Us vs. Them, Mach 3, Cube Quest, and Time Traveler, along with a couple of others - Dragon's Lair is not among them. It's complicated.

Yes, although some need both. ROMs are images of physical ROM chips. The hard disk images are called "CHDs" and are usually hard disk images but can also be laserdiscs.

I didn't know they used hard disks in arcade games... were those games implemented on some sort of embedded PC hardware?

Virtually all arcade games made since the 2000s (ish) run on standard PC hardware.

Maybe, but Konami "djmain" (first-gen Beatmania series) didn't. Neither did their "Twinkle" hardware (Beatmania IIDX series). Nor did their "Firebeat" hardware (Beatmania III series, Pop'n Music series, Keyboardmania series, Para Para Paradise series). Neither did their "GQ" board (Crypt Killers). Also, Taito's "Type Zero" board (9 games, look it up on System16). Oh, and Atari/Midway/Williams's Seattle, Vegas, Denver, Atlantis, Phoenix, and Flagstaff boards (SF Rush, SF Rush 2049, NFL Blitz, Gauntlet: Dark Legacy, Gauntlet: Legends, others). Incredible Technologies' "Eagle" board (Golden Tee Fore, Big Buck Hunter, Virtual Pool).

I have omitted quite a few.