Microchips are placed under skin of an animal on the base of the neck or between shoulder blades. Chips are very small about the size of grain of rice and do not cause any discomfort to the animal.
Microchips have been very useful in the return of lost pets. They can also assist where the ownership of an animal is in dispute.  Several countries require a microchip when importing an animal to prove that the animal and the vaccination record match.