Confetti-like pieces of paper formed from punch cards or paper tapes. May have been derived from the word Chadless keypunch, which did not create the confetti-like substance; therefore, it was assumed the stuff created must then be called chad.
U.S. Navy teletype machines produced chad from paper tape since before the Korean War. Chad was somewhat of a nuisance because it always got into sailors' hair, clothes, and shoes. On occasion, though, they would throw chad parties for departing sailors in which they would cover their shipmates in chad.
What seems to be jargon may in fact be considered mainstream because it's been reported that the word chad was used (1993) in the directions for a card-based voting machine in California.