>Will that work well for drawings? I have mostly ACAD and Solidworks drawings and some jpeg pictures with some text.

If you've got JPEGs, its teh same as building an HTML page. If you can get what you want in HTML, then CHM's will work.

>How do you generate the CHM files?

I generate the HTML files automatically, along with the contents, project, and index files for Html HELP Compiler, and then run teh compiler programmtically (same way as West-Wind's HTML Help builder does it) and I get a CHM.