When all 7 are brought together, they have the power to temporarily change the wielder into a super form, granting flight, invulnerability, as well as enhancing their natrual abilities. They are also granted control over"chaos" energy, able to use them as attacks, like Shadows "Chaos Spear", or able to use Chaos Control, able to warp space and alter time. Sonic the Hedgehog and Shadow the Hedgehog are known wielders of the chaos emeralds.
In the Archie comics, Chaos Emeralds were rare, but there were more than just 7. Green was the only kind of Emerald on Mobius. They originally appear as falling meteors to (post-earth) Mobius aster the Xorda's initial attack, when life began again on the planet; in the form of prehistoric anthro-animals. The Mobians of the time use the Emerald to become like gods, using their powers to ensure the balance of the planet with the Chaos Emerald, known as the Ancient Walkers.
Years later; Chaos Emeralds were usually found as ore in the planet, or prizes in "special zones" which were created by their "chaotic energy".
it wasn't till Sonic's journey through space did he encountered Red Chaos Emeralds on another planet. With the planet facing a crisis, SOnic tried to use the Emeralds to transform himself into Super Sonic, but instead, it just created a Super Sonic from Sonic. This Super Sonic was based off of FLeetway's take of Super Sonic, wild and destructive. Sonic just barely manged to have Super Sonic's energy to be depleted and faded away.
It wasn't until ADAM's betrayal to Eggman that we would see the rest of the Emeralds, after capturing Shadow and Tails and use their relationships with the Chaos Force (for Shadow's Chaos Control Abilites and Tails' legendary bond to them) to power up a Chaos Magnet that not only gathered the Emeralds of Mobius into one place, but ALL the Chaos Emeralds across the Universe! WHile Sonic and ADAM fought, Tails and Shadow broke free and use their powers to force all the Emeralds into the Zone of Silence, as having that much Emeralds in one place was too dangerous for the planet.
In the Zone of Silence, known now as the Special Zone, the god like entity known as Feist, forged all the Chaos Emeralds into 7 of their respected colors, and gave them as prizes to those who venture into his realm and won his trails.
Who Has Emeralds Now
So far, he gave the grey one to Sonic and Tails as a present for riding Nagus and freeing him from his control. It was use to help heal King Max, and was then put in storage for further use, until Mammoth Mogul, after loosing his Emerald; gave Sonic ultimatum: Give him the Chaos Emerald or he will have Tails, Mina, and Mighty get killed. With little choice, Sonic and Mina's boyfriend/manager, Ash, gave the Emerald to Mogul, returning him back to full power. He currently chooses NOT to use them, as he learn that he can't beat Sonic yet and decides to wait it out till he can take over the world.
Some time, Sonic and Tails managed to get a Green Emerald and left it with Blaze in her zone. While trying to help Sonic in a battle match, Shadow and a zone hopping Metal Sonic ended up in Blaze's zone. Metal Sonic left Shadow in the middle of ocean and went off to try to find the Eggman of the Zone, all the while causing trouble for the other residents. Shadow was saved by Blaze and Marine. And together, they stop Metal Sonic. But without his generator, Shadow was stuck in Blaze's Zone; until Blaze gave him the Green Chaos Emerald given to her by Sonic and Tails. And with it, Shadow Chaos Controled back to his home zone.
The Red Chaos Emerald was obtained by Shadow, Rouge, and E-123 Omega; when they "won" a trail of Feist's. It is currently under lock down at GUN's base.
The Purple Emerald was won by Geoffery St.John in a treacherous move against Sonic on a mission fro the King in the special Zone. Geoffery gave the Emerald to his true master Ixis Nagus, restoring his mind before he was captured in the Egg-grapes. The Emerald became a tip to his staff, allowing his crystal magic to flow through it and be more effective than ever, even turning Bunnie's robotic limbs into flesh.
The Blue Emerald was won by Eggman and Snively to power up the new Deathegg, as well as it's world-wide roboticizer. It has disappeared after Sally reverse the directional flow of the roboticizer. Eggman has offered an reward to his commanders if they can find it. It then turns out that Blue Emerald ended up in the world of Megaman, into the hands of Dr. Wily. While trying to analyze the gem, Wily made contact with Eggman. The two then worked together to build the "Wily Egg" in the "Skull Egg Zone". And in using the Emerald as its power source, they created a Genesis Wave that effects both their worlds, restarting the hunt for the Chaos Emeralds over again, which was ironically cut short as the two doctors managed to collect about 7 in a short amount of time for their ultimate plan.
Since Eggman's Genesis Wave was able to "bend" the realities of both worlds with the power of Chaos Emerald, all 7 of them would lead to the bending and control of ALL universes. As light of this plan was pointed out by Eggman (and the flaws brought on by Sonic and Dr. Light) Albert questioned his new friend's judgement as well as sanity. When the two carried out their plan, both Sonic and Megaman arrived at the core of the Wily Egg with Dr.Light, in hopes to reverse the effects, but it was too late: The Super Genesis Wave was fully charge and ready to warp reality. Both Megaman and Sonic then use the Chaos Emerald to super charge themselves into their Super Forms and use Chaos Control to fix their respected Universe. While Rock manage to restore his, Eggman, in a fit of rage of loosing again, attacks Sonic before he can repair, throwing his focus off. With little choice, Sonic perform Chaos Control, but seemed to cause his universe to shatter, with unknown consequences...