In the dystopian world of Cinder, ID chips are used to record each individual's personal data. They can also store univs, the official unit of currency for the Earthen Union. More significantly, they can be used to track a person's whereabouts through a large database. They are implanted in the left wrist, making it easy for the authorities to scan them in order to determine an individual's identity.
ID chips become a very valuable commodity for Lunars. As they are legally prohibited from leaving the moon, the only way they can start a new life on Earth is by stealing ID chips from dead people and assuming their identities. Later on in the story, an angry and upset Cinder will prevent the med-droids from taking the ID chip of her stepsister Peony, who has just died from the plague. She's determined that Peony's identity will not be sold, as so many others have been.