The Chaos Energy is the central plot element featured in the first arc of the fourth season. It represents the manifestation of the lack of synchronization between a Brawler and his/her Bakugan, which spawns a Mechtogan. Mag Mel used it to break free from his inter-dimensional prison. When Mag Mel receives Chaos Energy, he seems to glow crimson red, similar to Razenoid, who seems to glow purple (actually, Razenoid is outlined in purple, rather than glowing). This energy is earned by causing chaos with the Bakugan which makes both Mag Mel and Razenoid stronger.
They both use it to brainwash people via their Chaos Bakugan. Chaos Energy is also created when Mechtogan are spawned, since they are made from chaos. It was also revealed that fear can produce Chaos Energy too, as seen in Interspace Under Siege. Eventually, the chaos energy generated in Interspace and New Vestroia gave Mag Mel enough energy to break free of their prison in A Hero Returns.
In Dangerous Beauty and Unfinished Business, Mag Mel killed his own subordinates, Sellon and Anubias, to absorb their energies, that combined with the Gate and Key he and Razenoid had, to finally be reborn.