Chemotherapy is the use of chemical substances to treat disease. In its modern-day use, it refers primarily to cytotoxic drugs used to treat cancer.
Cancer is the uncontrolled growth of cells due to damage to DNA (mutations) and, occasionally, due to an inherited propensity to develop certain tumours. Autoimmune diseases arise from an overactive immune response of the body against substances and tissues normally present in the body - in other words, the body attacks its own cells. In contrast, transplant rejection happens because a normal healthy human immune system can distinguish foreign tissues and attempts to destroy them. Also the reverse situation, called graft-versus-host disease, may take place.
Broadly, most chemotherapeutic drugs work by impairing mitosis (cell division), effectively targeting fast-dividing cells. As these drugs cause damage to cells they are termed cytotoxic. Some drugs cause cells to undergo apoptosis (so-called "cell suicide").