A Keychain (キーホルダー, Kīhorudā?, lit. "Keyholder") is a magical piece of equipment that modifies the appearance and abilities of a Keyblade. In Kingdom Hearts 358/2 Days, the Gear Panel function replaces Keychains, and in Kingdom Hearts Re:coded the Keyblade Chip in the Gear Matrix replaces Keychains. Likewise, the Card system replaces Keychains in Kingdom Hearts Chain of Memories. Cards, however, do not affect appearance, only ability.
The Keychains have the ability to change a Keyblade's stats, grant it special abilities, and give it a new appearance. While most Keyblades have a basic form, like the Kingdom Key, a Keyblade wielder can upgrade and change the form of the Keyblade with a Keychain. In other words, when Sora or another wielder is equipping a "new" Keyblade, he or she is equipping a different Keychain to the Keyblade, changing its form.
It has not yet been explained exactly what a Keychain is and why it has the power to transform the Keyblade. A wielder usually receives a Keychain after "completing" the events that transpire within a world, but with a few exceptions in which the protagonist is shown being given or finding a token, the Keychain simply appears in their inventory without explanation. These Keychains are often modeled after elements of the world from which they are received in some way. It is likely that a Keychain represents the memories that a wielder holds of a certain world or individual.