A common slang term for particularly good marijuana. Chronic tends to be leafy green with red or purple hairs and some crystallization of THC on the buds if you are lucky. Other related terms and derivations include: phat chronic, chron, the chronbomb, nugs, nugglets, and dank.
While the origin of this term is debatable, it was definitely popularized by Dr. Dre's album The Chronic with its prominently displayed cannabis leaf. I would wager that it comes from the phrase chronic smoker.
More recently, the works of Kevin Smith have included the characters Jay and Silent Bob whose comic book alter egos are Bluntman and Chronic. This may have something to do with the fact that Jay and Silent Bob do indeed smoke and sell chronic.
Some noders have theorized that this is a regional slang, originating in California. I think this is a reasonable assumption about its origin, but I believe Kevin Smith's frame of reference is New Jersey. Based on this evidence, it seems that "chronic" has spread to the national level.