Short answers, pulled from the story.
The word chibi appears in Japanese dictionaries as a colloquial term for very short people and children. This usage dates back to the early days of modern Japanese slang before becoming an art label.
The head of a super-deformed character occupies anywhere between one third and one half of total height. Stubby limbs replace long legs and arms found in normal designs while oversized eyes dominate the face.
Publishers began using chibi to describe small cute versions of existing characters during the 1980s. The phrase super deformation entered the vocabulary later through French influence on Japanese design terminology.
American fans encountered the term Chibiusa during the mid-1990s through Sailor Moon media releases. This diminutive pet name for the daughter of Sailor Moon comes from Chibi Usagi meaning Little Rabbit.
Product sales benefit significantly from including these simplified character versions because promotional materials often feature chibi illustrations instead of standard artwork. Publishers release figures and plush toys based on the exaggerated proportions which generate higher revenue than traditional collectibles.