I can totally understand how both words would be deemed offensive, though I find it hard to articulate. I can envision some white guy using "chief" to a Native American man the same way the "n-word" would be used to a black man. Ditto for "squaw." Of the two, I think "squaw" is probably considered more offensive; you could probably describe Sitting Bull as a Lakota chief without setting anybody off, but you would not use it as a form of address. "Squaw" is best avoided altogether, even if there are people who would not find it offensive; "woman" is always a safe bet as a description, though not, as observed above, as a form of address.