The next step up from a
picture books for people who are learning to
read; a chapter book has a large enough amount of text that it can be divided into separate
chapters. Chapter books may or may not have
illustrations in them.
Calling it a "chapter book" implies that it is a children's book, not written at an adult reading level and not as long as as a novel would be. Chances are, not one would refer to Daniel Pinkwater's "The Hoboken Chicken Emergency" or Astrid Lindgren's Pippi Longstocking books "novels," but they are definitely not picture books either. Chapter books are an intermediate stage.