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Get a Chao from Sonic Adventure first. Then, when your Chao gets to the end of an area it will ask you where you want to go. Select the place you want to go and immediately press the mode button. Then press the mode button two more times and you will be back on the Chao Adventure screen. Just let the Chao start walking and it will let you select the next area. You can repeat this as many times as you want.
Chao Puzzle:
Insert the VMS into socket one of a controller, you dont have to have a file. Plug the controller into port D. A Chao Puzzle will appear on the VMS screen after selecting a file.