A microchip is like an electronic dog tag that cannot be separated from your pet. The microchip is usually inserted on your pets back between its front should blades. The microchip is about the size of a grain of rice and compulsory in most states in Australia.
The benefit of a microchip is if your pet is found without its collar it can be scanned and easily reunited with its owner. The microchip data is managed on a central database and you need to ensure your information is up to date if you move house or change phone numbers.
You should speak to your local vet regarding micro chipping options for your pet. It provides better protection if your pet is ever lost.
Further information can be found at RSPCA Pet Microchip.