Mechanism of chip formation :

Basically, the chip is formed by a localized shear process that takes place over very narrow regions. Classically called the shear zone or shear plane, this deformation evolves out of a radial compression zone that travels ahead of the shear process as the tool passes over the workpiece

In Fig. the tool is considered stationary, and the work piece moves to the right. The metal is severely compressed in the area in front of the cutting tool. This causes high temperature shear and plastic flow if the metal is ductile. When the stress in the work piece just ahead of the cutting tool reaches a value exceeding the ultimate strength of the metal, particles will shear to form a chip element which moves up along the face of the work. The outward or shearing movement of each successive element is arrested by work hardening and the movement transferred to the next element. The process is repetitive and a chip is formed.