In answer to the following
" I am just curious how would this chipping allow the dial on the camera to set the aperture? "
It does, believe me. The technical explanation is rather long, so I'll skip it. But there is no magic involved.
You can also realise this is happening since the "P" and "S" modes are available and fully functional; they both work by changing the actual aperture on the lens.
The CPU chips can be programmed to work both in "P" ( the AI-P designation originally used by Nikon for 45/2.8, 500/4, and 1200-1700/5.6-8) or "G" mode, which encompass virtually all AF lenses made the last 30 years. All AF and AFS lenses also are AI-S, meaning they have a linear aperture mechanism. To complicate the matter further, Ai-P are also Ai-S. Nikon never made their nomenclature crystalline clear. The problem is mainly the earlier classes of lenses, pre-AI (before 1977) or AI (1977-ca. 1981). The pre-AI class can be converted to AI (often designated AI'd) so I treat both under the AI category.
Initially, there is no difference as both kinds will allow the aperture to be set from the camera side and on the surface, all exposure programs (A, M, S, P) will be functional if a CPU is added to them. However, although the read-out metering value is correct in both cases, the actual exposure can differ substantially. This is because the camera calculates the amount to stop down the lens (actually, the travel of the stop-down plunger inside the camera) based on a linear model, but the aperture movement of the AI/AI-modied Nikkors is non-linear. So for example, the meter reading says f/8, 1/250 (and these are the settings you get with an AIS lens), the actual settings at the time of the exposure might be f/11, 1/250 for the AI due to the non-linearity. Thus, one easily gets underexposure with the AI kind.
However, if the aperture is set directly on the lens, using the aperture ring, both meter reading and the actual exposure will coincide, and there is no difference between AI/AI'd or AIS lenses.
The contact block acts as a control interface and simply relays the electric signals from the CPU print. In addition, there is the CPU, that does the real stuff.
If you employ a factory CPU unit scavenged from a broken lens, its signature cannot be changed. In some cases, using a unit from a zoom lens, you can fake a lens signature by short-circuiting the section that reports the focal length as this will alter the maximum aperture sent to the camera. However, such factory prints are large and bulky and very few lenses have the required space to host them. The customised CPUs shown in this thread are always the better and easier approach.