The therapy chair was created by the Ikorans. It was used for therapeutic purposes. It could extract memories and rewrite identities.
The therapy chair was stolen by Baron Denton de Kay Leigh. He used it on the villagers of Armstrong's Colony, ingesting what was left after they had been placed in the chair and gaining their knowledge. He put Charley Pollard in the chair, but she was rescued by the Seventh Doctor. When the Baron put the Doctor in the chair, the Doctor was able to control the Baron, and used the chair to rewrite his identity, making him a benevolent leader. (PROSE: The Heroine, the Hero and the Megalomaniac)