When a single author (or a collaboration between a couple/few friends) creates a work of fiction - that is Fiction as we read growing up. In the libraries. Or on the TV/movie screen. Static. One direction. Start to finish (unless you opened the book at the end or fast forward through the show), but it was always the same, every time you started it.
Now we have the world of the internet, the premise of a billion different collaborators on any work of art. There might be a single leader (which has been called the "Puppet Master", or PM) conducting the orchestra, but when you let your piece out into the wild of the web, you are giving the story up to a little bit of chance. From this rises the chaos. It is up to the PM to keep things in order - or follow the new path if it fits within the scope of the design desired by the PM.
No longer are stories and movies and TV limited to a single direction. Ideas can be expanded, tangets explored, no two experiences have to be the same, and sometimes you can go back and follow a different path. Different people add to the fiction along the way. It's chaotic.
If you take the chaos one step further, create interaction between the characters in the fictional world (the alternate reality) and throw in a bit of mystery or purpose for the interaction, maybe even a few bumps in the road that need to be hurdled to get to the next chapter in the story, now you have a game or an experience. If the interaction is static, one sided, pre-determined and the players have very little affect on the story - it's not so much chaotic fiction, it's planned fiction in the alternate reality world and we are experiencing it. Alternate Reality Experience (ARE). If the interaction is fluid, chaotic, and affects the story, we are playing a game, an Alternate Reality Game (ARG).