To show how your Chao is feeling, a symbol appears over its head. This is commonly called the emotion ball, or emotiball. The different emotiball symbols mean different things, and combine with the Chao's facial expression to show exactly how it is feeling. These different expressions are explained below.
If your Chao simply has a dot floating above its head, then it is in its normal state and is probably not thinking of anything in particular.
If your Chao has a large heart floating above it's head, then it is very happy. It may also jump up and down! You might have done something really nice to it, such as feeding it or hugging it, or it may just be happy in general!
If your Chao has a large question mark above its head, then it is thinking about what to do.
Excited / Surprised
If your Chao has a large exclamation mark above its head, then it means it is excited or was startled at something.
Angry / Upset
If your Chao has a large tornado swirl above its head, then it means it is very angry or upset about something. You must have done something really bad such as attacking it!
A Chao that is sitting or laying down with its eyes closed is asleep. Try not to wake it up, as your Chao will still be tired. Waking the Chao up by feeding it, or picking it up doesn't seem to make it unhappy, it will just stay tired.
In Chao Adventure 2 for the Dreamcast, your Chao refers to the ball as the "thing floating above every Chao's head". He also notes that the "Chao Thing" is "round and kinda squishy" and is "probably the most important thing a Chao has"!