2) A term used by anime/manga fans to referr to small and detailless characters. "Chibi" characters are often used to represent a form of cuteness. It can also be used to indicate small characters (like Chibi-Usagi/Sailor Chibi Moon in Sailor Moon). (anime/manga)
2) That chibi character is cute
In slang, however, it occasionally takes on aspects of cuteness, particularly when the individual in question is young, female, and already considered "cute" by the speaker. It can also be used as shorthand for a drawing style of Japanese origin more properly known as super deformed (SD).
Its usage in English (or rather, Japanglish) ignores the word's derogatory context, and focuses on the "cute" meaning as it often appears in anime and manga, and its exclusive usage in this context is a good sign that the speaker does not, in fact, know how to speak Japanese.
(Speaker B): "It's marketing, man. All the fangirls think 'chibi' is synonymous with 'cute'."
"Next phrase, next phase, next nothing new"