This is an awesome feature new for Gamecube. Your Chao can take part in a Virtua Fighter style martial arts match! There is absolutely nothing cooler than watching your Chao kick the crap out of another Chao in real time.

Sonic-2 versus Blood
For Chao Karate,
Swim=Defence
Fly=Stealth
Run=Speed
Power=Strength
Stamina=Health
What they affect is pretty obvious. A stealthy Chao can dodge blows easier, a swift Chao attacks faster and a healthy Chao can take more punishment.
Chao fight on their own without instruction. The only real trick to Chao Karate is the "Zeal" bar at the bottom of the screen. Every time your Chao is hit, his Zeal goes down; if it hits zero he will sit down and start to sway dizzily. Mash the A button to cheer on your Chao and raise his fighting spirit.

Yellow Dark Fly/Fly Chao
There are four classes of Chao Karate: Beginner, Standard, Expert, and Super which appears when you beat Expert class. Beat each class to move on to the next. When your Chao beats Super class, he'll be the Grand Champion.
For every fight your Chao wins, his rank will increase. The highest rank is Grand Master. You can see your Chao's rank when you visit the Doctor.
Round 1 - Chaosky: a regular blue baby Chao
Round 2 - Chaolin: a regular blue baby Chao
Round 3 - Chaoko: a regular blue baby Chao
Round 4 - Eggie or Dinner: baby Chao with an eggshell or a pot on their heads
Round 5 - Happy: an adult Chao with an apple on his head!
These guys are no threat. The first three are babies! Just have about ten levels of all stats and your Chao should wipe the floor with the lot of them.
Round 1 - Lucky: Dark Swim Chao with a Paper Bag on his head
Round 2 - Melody/Smokey: Hero Chao with Flowerpot or Pumpkin on their heads
Round 3 - Stormy: Hero Chao with a red wool hat
Round 4 - Spooky: Neutral Run Chao with a blue wool hat
Round 5 - Stinky: Dark Fly Chao with a black wool hat
The Standard Class are quite a bit tougher than the Beginner Class, but still nothing to worry about. About level 25 in all stats should be sufficient to beat them, but watch out for Stinky.
Round 1 - Magic: Hero Running Chao
Round 2 - Ninja/Skull: Fly Chao with a wool hat or skull on their heads
Round 3 - Tin/Woody: Swim Chao with a tin can or stump on their heads
Round 4 - Rainbow: Dark Power Chao that flirts with you!
Round 5 - Wacky: A really angry Neutral Run Chao.
These guys are real bruisers and the curve is steep. Though you might be able to beat Magic with 40 on all stats, you'll need 60 or more to take on the mighty Wacky. Do not underestimate the difficulty here!
Round 1 - Crunch: Has a watermelon on his head
Round 2 - Wacky: Now with dragon horns
Round 3 - Crystal: Eek! Amber Hero Chaos!
Round 4 - Angel: Eek! Aquamarine Dark Chaos!
Round 5 - Flash: Eek! Onyx Light Chaos!!
These guys are the best Chao Karate has to offer, do not expect them to be easy. Have level 80 on all stats at the very least.
Two emblems can be yours if you beat all the Chao Karate stages. And, of course, the knowledge that you are the
