Your question implies that the assignment is to write about a single chapter. The answer depends on the nature of the chapter.
A novel may be taught chapter by chapter, in which case what you are probably being expected to know are the details specific to the chapter--but never in isolation from the rest of the novel. The teacher is trying to ensure that you are actually reading the book (checking your knowledge by asking for details), but a good teacher will also want to know that you are grasping the significance of those details. As you are reading, watch for echoes of previous scenes and flag them as "foreshadowed" so that when you write so-and-so is squashed by a train you can add "as foreshadowed in the scene where . . ." Mark transitions in a character's growth by noting the character before-and-after, as in "so-and-so experiences a loss of innocence when she stumbles across the moose carcass, and she no longer appears in the hair ribbons she had worn since her adoption by Mrs. Caribou." A second reading is always helpful, as you are bound to miss things that take on importance only with hindsight. And, yes, following up with critical discussion--either with people you know or with analysis offered by places such as enotes--can bring a story to life by revealing levels of meaning you may not see on your own.
If by chapter you mean a textbook chapter, that's a little different. A literature textbook may focus on a short story or fragment of a longer work and come with all kinds of annotations and study guides. By all means, learn the chapter. It helps sometimes to read the study questions first so that you can keep an eye out for the answers as you read--but yes, you must read the literary work being extracted. Textbooks are organized, and the purpose of the story, as it is situated in the book, determines what the teacher wants you to learn from it. So if you read "The Bishop's Candlesticks" in a unit on transitional incidents in character development, you are going to be asked to focus on the hardened criminal before vs the softened penitent after. This chapter extracted from Les Miserables is far richer in all kinds of literary angles, but in your paper concentrate on what you are being asked to learn from this unit chapter.
Later, when you need to write a paper comparing and contrasting the use of symbolism in two different works you have read, you can pull out the candlesticks and the dead moose and show how one destroyed innocence and the other restored it. Having read the stories (instead of merely gleaning what you need to fudge your way through a paper) gives you an accumulated store from which you can pick and choose what you need, not just to pass a test but also to be a smarter, savvier, more thoughtful person.
You should read the chapter and then get some other opinions on it. You can do this by discussing the chapter with others or by going to some websites that specialize in analyzing literature, such as Enotes. Reading an analysis can help you see things that you might have missed the first time.
I'd recommend reading the chapter a second time and taking notes on whatever your topic is, be it characterization, theme, diction, or whatever.
I agree that an understanding of the text and its key elements is far more important than simply re-reading. Of course, you will have to read the text at least once in order to understand the selection. Try taking notes or highlighting as you read to make review easier. Note important characters, plot points, and literary techniques. If you understand the text and its literary features, you should be well prepared for an exam.
Your teacher's specific style of instruction and areas of interest will help determine what you should focus on in preparing for an exam.
If your teacher likes to focus on plot, then you should make sure you are very familiar with the story's plot. Theme, symbolism, literary devices and character are other possible areas of focus for a literature exam.
I personally think the best way to prepare for a paper or exam based on literature is to know and understand the text. Of course, you should have read the chapter at least once. Then, instead of studying by doing a re-read (or several), make important notes of the characters, literary elements, or key plot details within that chapter.
The best way to study literature is to be well versed with the textbook and while reading the textbook be sure to make a note of the main points which can be useful to have a last minute revision.
I think its important to one, thouroughly read the book, as well as annotate as you go, take notes over motifs, themes, symbolism, and other things that involve "reading between the lines".
Thank You so much. All the information was really helpful.;)