Here goes...
Her real name Gabrielle Chasnel. It became Chanel when a nurse or hospital employee spelled it incorrectly on her birth certificate. For whatever reason, it was never noticed or corrected.
The story is that she did not have a father; her mother abandoned her at six, leaving her with a Catholic convent. She never saw her again.
At 18, she visited an uncle and caught the attention of a young officer who took her with him to Paris to live. They never married, but she lived with him and took the habit of lounging around in his pants.
I should mention that everything up to this point is highly questionable, especially since the 1990's. Because of the error in her surname- Chanel instead of Chasnel- she technically could make up any past she wanted to, and it would be practically impossible (especially back then) to check it out and call her on it. In the USA, a cable channel called Biography (they have a website) did an excellent profile on her life and addressed this very well. They presented evidence (not conclusive, mind you) that Chanel was never orphaned; she led an average, ordinary life and was a bored Jewsih housewife who one day got up and left her family, chasing her dream of a fabulous life in a new, exciting city.
By the twenties she started making hats. She opened up a shop, and gained a loyal following. Soon she moved into clothing.
She was famous in the twenties for being a "modern woman" and designed suits out of humble, low end fabrics- tweed, jersey ("poverty de-luxe", they called it)- while making indulgent, glamourous evening wear. She adopted the camellia as her signature. She used baroque pearls and felt real jewelry was "a ludicrous waste of money".
She designed society women but also did costumes for Hollywood films in the 20s (so did Patou and Lanvin-it was a good publicity technique for Hollywood films)- I cant remember which, google it. I think it was for MGM.
She launched the first ever fashion designer fragrance, No5 (because it was the 5th of the samples presented to her) around 1933.
During the Nazi occupation of the 40's she closed her house. She met a handsome Nazi officer and had an affair with him, so during the occupation she lived in luxury under his protection at the Paris Ritz-Carlton. She became the most despised woman in France. After the liberation, she escaped the humiliation of having her hair shaved off (punishment to all women who slept with Nazi's) and went into hiding.
In 1954, she returned and reopened her house- but to a mixed reception. This show debuted the contrast chain binding on the jacket. Lagerfeld scored an invite and attended- she liked new designers. She did not like Dior, though "He hates women. He is cruel genius."
The Paris press was not ready to forgive her for the affair and mocked her quiet suits and sportswear-the famous quote was "Suitable for an older, heavier school teacher". Europe was not impressed.
But the USA press adored it and Chanel's business was restored-mostly due to American women. Few Europeans patronized her business, but US women bought in droves. .....
In the sixties, she had trouble with the new esthetics- particulary the mini skirt (she hated knees) and lamented "Women have gone crazy". Her influence and business waned, and her clientelle aged.
When she died in 1971, she proclaimed Yves Saint Laurent "my spiritual heir".
The house lingered until 1983, when Lagerfeld took the helm he holds today. Although every couple of years or so the rumour circulates that Chanel will replace Lagerfeld, it seems he has beaten the odds and as comfortable at Chanel as they are with him.