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The Hero's Chi allows its user to have increased Kung Fu skills. Both Oogway and Po used these abilities against Ke-Pa, but Po was seen using it to also fly and fire a blast of energy out of his stomach.
The first known possessor of the Hero's Chi was Oogway. When he first encountered the demon Ke-Pa, the young tortoise fought him, and though he was attacked and temporarily drained, he was soon restored by the Peach Tree of Heavenly Wisdom, and the power of the Hero's Chi allowed Oogway to seal away Ke-Pa and his demon brethren, and save the Valley of Peace. Centuries later when Oogway passed on, he gave the Hero's Chi to the Dragon Warrior, Po.
The Hero's Chi was said to be given by the universe as a gift to Oogway. He used the Hero's Chi to free the Valley of Peace from the rule of Ke-Pa and the underworld demons. He had sealed the demons away, except for Ke-pa, who fought Oogway. When the young tortoise was exhausted and his Hero's Chi all but drained, he was aided by the Peach Tree of Heavenly Wisdom, and his power was restored, allowing him to defeat Ke-Pa and contain him in the form of a pig.
When Oogway passed on, he gave the Hero's Chi to the Dragon Warrior, Po. Po was unaware of this, until he was told by Shifu and learned of Ke-Pa and the protective power of the Peach Tree, which had recently died. However, like Oogway before him, Po used his Hero's Chi to battle Ke-Pa when he returned to the Valley, and was drained and nearly finished off. Before he was completely gone, he was saved by a peach tree sapling that had come from the Peach Tree of Heavenly Wisdom, which re-energized and enhanced his Hero's Chi, allowing him to destroy Ke-Pa and his demons once and for all.