What does an IC chip do?

Answer 1

ICs (Integrated circuits) can do any number of things in a circuit. Typical analog ICs are timers, amplifiers, etc. Some digital ICs are counters, adders, multipliers, interface circuits, microprocessors, etc. They are typically silicon-based.

Answer 2

The thing it was designed to do, which can be nearly anything.

Some ICs are just assorted components that the user can wire together as he desires. These are usually called "transistor arrays" and are now generally obsolete because they rarely contain more than a dozen transistors and the IC manufacturers don't want to waste money putting so few transistors in a part anymore.

Some ICs perform dedicated Analog functions like amplifiers, filters, multiplexers, demultiplexers, radio transmitters, radio receivers, etc.

Some ICs perform complicated Analog functions and can be programmed by the user to fit their design requirements. These devices are sometimes called Field Programmable Analog Arrays (FPAAs).

Some ICs perform dedicated Digital functions like logic gates, flipflops, registers, latches, encoders, decoders, multiplexers, demultiplexers, RAMs, ROMs, PROMs, ALUs, UARTs, USARTs etc.

Some ICs perform complicated Digital functions and can be programmed by the user to fit their design requirements. These devices are sometimes called Field Programmable Gate Arrays (FPGAs).

Some ICs are complete programmable Digital computers and are called microprocessors.

Some ICs are complete systems containing one or more Digital computers, RAM, ROM, all I/O devices, Analog processing circuits, etc. Handheld devices like Smartphones, Tablets, GPS receivers, etc. use these "system on a chip" devices.