when you “plug in the chip” are you talking about the Official PicAxe Programming cable? If so, your computer is recognizing the USB-to-TTL converter chip in the cable itself. But to USE said cable, you need to install the drivers, like rogue said. The default drivers were compatible with XP, so they should work with Windows 7.
OR----
If you have installed the drivers, try this. Select View > Options. Select the Serial Port tab. There will be a COM value active for each USB port on your computer. Select the appropriate COM (once installing the driver, you have to use the same USB Port/COM), click Apply, and try again.