What does chroma blur do and how should I use it?

It removes color noise from high ISO RAW files.
Try it on a high ISO dark photograph zoomed at 100%. Remember it takes a while to reload the whole image.
It removes the color noise, leaving a color-free grain. This is hard to remove with Aperture's noise reducer, best is to bring it to photoshop and remove it with Noise Ninja or Noiseware.

In areas with color based noise artefacts (varied color specks) this averages the colors to smooth out the noise. The amount applied in camera raw fine tuning is not very heavy smoothing even at the maximum value. If you have that much color noise, you would rather use a regional noise correction program, because if you use too much Chroma blur it will also smooth non-noisy areas, reducing resolution. Got a lot of noise, take it into Photoshop and use a plugin, or use a stand along noise reduction program that has regional analysis of noise.