The function "filter(chan, data)" in MATLAB applies a digital filter defined by the coefficients in "chan" to the input data "data." It is distinct from convolution, as it processes the data in a way that maintains the same length as the input. To understand the operation of "filter," users are encouraged to compare its output with that of the "conv" function using known sequences. By analyzing the lengths and visualizing the outputs, the differences between filtering and convolution become clearer. This understanding is crucial for implementing inverse operations in signal processing.