There are two ways to hatch a chao egg. The good way is to shake it by picking it up and holding the control stick in any direction and holding the B button at the same time for a few seconds. When you put it down, the egg will hatch. The bad way is to hurl the egg against a wall. If you do this, your chao may not like your character.

Chao love fruits. You can find fruits in the Chao gardens. To get a fruit off a tree, walk up to it and  press the B button. If you did it right, the character will grab the tree. Hold the control stick in any dirction to shake it, and wait for a few seconds. If no fruits fall off, that means the fruits are not fully grown yet. Wait for a few minutes and try again. To feed a chao, pick up a fruit with the B button, walk up to your chao, and the chao will automatically start eating it. If the chao is not hungry, it will toss the fruit over it's head. (this does not happen in Sonic Adventure for Dreamcast) If you pick up the fruit while the chao is eating it, the chao will cry, so don't do it. If the chao tosses the fruit away and a swirl appears over it's head, that means the chao does not like the fruit. Keeping a chao well-fed will make it happy. Never let a chao stay hungry because it will  not be happy.
Signs of hunger are
Kicking, flailing, and crying on the ground
Walking up to a fruit and eating it by itself
Running up to the character and pointing to it's mouth (if the character is holding a fruit)
Bending over and touching it's stomach
Stealing fruits from other chao (under certain conditions)

Do-
-Pet your Chao often
-Keep it well-fed
-Cuddle it often
-Give it toys, animals, and Chaos Drives

Don't
-Attack your Chao
-Throw your Chao
-Starve it
-Cuddle or hold it for a very long time
-Put it in the water if it can't swim

The black market is where you can buy items for your Chao, suuch as eggs, fruits, and even masks.

Eggs These  eggs will hatch colored Chao. They will be no different from normal Chao, except they will be colored. Item Cost Description White Egg 400 Typical rare egg Blue Egg 500 Typical rare egg Red Egg 500 Typical rare egg Orange Egg 600 Typical rare egg Sky Blue Egg 600 Typical rare egg Brown Egg 800 Typical rare egg Green Egg 800 Typical rare egg Grey Egg 1000 Typical rare egg Lime Green Egg 1500 Typical rare egg Black Egg 2000 Typical rare egg Shiny White Egg 4000 Moderate rare egg Shiny Blue Egg 5000 Moderate rare egg Shiny Yellow Egg 5000 Moderate rare egg Shiny Orange Egg 6000 Moderate rare egg Shiny Pink Egg 6000 Moderate rare egg Shiny Purple Egg 6000 Moderate rare egg Shiny Green Egg 8000 Moderate rare egg Shiny Grey Egg 10000 Moderate rare egg Shiny Lime Green Egg 15000 Moderate rare egg Fruits You can also buy fruits from the Black Market.  Some of these fruits are the same as the ones in the garden, while others have special effects. Normal Fruits Item Cost Description Round fruit 80 Round and delicious fruit Square fruit 80 Square and delicious fruit Triangle fruit 80 Triangular and delicious fruit Special Fruits Item Cost Description Hero fruit 120 Hero trait fruit. Helps Chao become Hero Dark fruit 120 Dark trait fruit. Helps Chao become Dark Chao fruit 200 Skills fruit. Raises all stats Heart fruit 300 Egg-fertility fruit. Adult Chao may mate after eating Mushroom 300 Very nutritious mushroom. Gives Chao extra stamina Seeds These seeds can be planted in the garden by your Chao. When they grow, they will have fruits.  Make sure your Chao has a shovel and watering pail, or it won't be able to plant the seed. won't be able Item Cost Description Tasty seed 200 This is a regular tree seed Round seed 300 Grows a tree with round fruits Square seed 300 Grows a tree with square fruits Triangle seed 300 Grows a tree with triangle fruits Dark seed 400 Grows a tree with dark fruits Hero seed 400 Grows a tree with hero fruits Strong seed 500 This is a long life tree seed Masks The Black Market also sells masks for your Chao to wear. To make a Chao wear a mask, you need to give it a skeleton dog first. Then if you give it the mask, it should put it on. These masks can make your Chao look very cute, silly, or scary. Item Cost Description Egg shell Nothing When you hatch a Chao, you can use the upper part of the egg as a mask Pumpkin Nothing The pumpkin can be found in the Chao and Hero garden by digging Skull Nothing The skull can be found in the Dark garden by digging Apple 2000 Huge apple! Cardboard Box 2000 Moving cardboard box Pan 2000 Worn out pan Empty Can 4000 Empty fruit can Paper Bag 4000 Grocery store paper bags Stump 4000 Big tree stump Bucket 6000 Worn out bucket Flower Pot 6000 Big flower pot Watermelon 6000 Big, round watermelon Wool Hat (Red) 8000 Warm and striped Wool Hat (Blue) 10000 Warm and striped Wool Hat (Black) 20000 Warm and striped

     Running (Green)             SWM    FLY    RUN    PWR
     - Bunny                      0      8     40     -16
     - Boar                      -4     -12    32      16
     - Cheetah                   -8     -8     40      8

     Swimming (Yellow)           SWM    FLY    RUN    PWR
     - Seal                      40     -16     0      8
     - Otter                     44     -4      8     -16
     - Penguin                   36      12     8     -24

     Power(Red)                  SWM    FLY    RUN    PWR
     - Tiger                     -8     -16     20     36
     - Bear                       8     -16     4      36
     - Gorilla                   -4     -8      4      40

     Flying (Purple)             SWM    FLY    RUN    PWR
     - Parrot                     0     48    -20      4
     - Peacock                    0     48    -20      4
     - Condor                    20     60    -24      16

     Random (Blue)               SWM    FLY    RUN    PWR
     - Raccoon                   20      16     4      8
     - Sheep                      8      8     16     16
     - Skunk                      8      12    16     12

     Black (Ghost)               SWM    FLY    RUN    PWR
     - Half-fish                 32      0      8     24
     - Skeleton Dog               8      8      32    16
     - Bat                        8     40      8      8

     Orange (Imaginary)          SWM    FLY    RUN    PWR
     - Dragon                    20      4      8     32
     - Unicorn                   16     12     36      0
     - Phoenix                   12     32      4     16

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