The chumby is not a primarily interactive device like a PDA or desktop computer. It's generally meant to be used in a somewhat passive manner - it churns through information that you've specified for it to display.
However, the device does have several useful sensors. Stitched into the fabric of the enclosure is a bend sensor that detects if you gently squeeze the upper right side of the device. It also has a touchscreen. In addtion, it has an ambient light sensor and a sensor that detects whether it's running from AC or its little 9V battery.
All of these sensors are exposed to software with Linux device drivers and accessible from the Flash layer.
At the moment, the bend sensor brings up a "Control Panel", that in turn uses the touchscreen to let the user configure various settings on the device, such as Wifi, alarm, time, calibration of the sensors, etc.
Some of the widgets also use the touchscreen to allow the user to (optionally) interact with them. It's possible for a widget to be a Flash game, like the ones that run in the browsers.
You can also add USB peripherals to the external USB port - the chumby has USB mouse and keyboard drivers, though neither are currently exposed to the Flash player in the current revision.
Users don't typically configure the content for the device on the device itself - they use the web site for that.
The biggest issue we've had to confront with chumby is that folks try to think about the device as something like a PDA, phone or desktop computer when it's none of those things.
In the current software revision, the alarm is fixed to a built-in alarm sound - you were supposed to be able to specify a sound but unfortunately there's a bug that makes that fail. However, in later versions of the software you'll be able to specify what you want to have happen - music, a Flash movie, or whatever.