First of all, the Chat Reply Helper for Stack Exchange sites provides a simple key combination to select a message to reply to.
This removes the need to grab the mouse and aim for the tiny reply icon. It also has the small side effect that it allows you to reply to your own messages, to possibly reference an earlier post.
Second, it puts a highlight on the message you're currently replying to.
Third, it displays the contents of the message that was replied to in a small bubble. This bubble is shown when hovering over the indicator that a message was a reply to an earlier message.