They just appear once in "Chum Caverns." The Cave Dwellers and Plankton serve the Chum Balls to the customers that go into the Chum Caverns to get food. The only fish who are seen ordering the Chum Balls are Billy, and three other fishes (besides SpongeBob). The fishes claim it is disgusting (which is expected), but they're eating it just for the beautiful scenery of the Chum Caverns.
The Chum Ball makes regular chum that has been rolled together.