why seperate engine and chassis grounding?

I am not really getting the point in separating engine and chassis grounding since they are both linked by the earth strap. Is that to help determine an earth strap connection issue by isolating the problem?

Its helpful when designing a harness and troubleshooting. As if you decided to connect everything to "Chassis ground", then you'd need to run wires back through the engine harness connector. Where as the "Engine Ground" for sensors and solenoids etc in the engine harness you say "Engine Ground" and know these wires only need to go as far as a convenient grounding point on the engine block. This reduces the amount of wires in the engine harness and connector. It also provides a consistent ground reference to all engine sensors.

So if there is something minor voltage going to chassis ground somewhere, its less likely that it will affect sensors that are all referenced to the engine, as that voltage leak will take path of less resistance back to the battery ground post from chassis ground.

And because there are multiple things on engines that are incredibly sensitive to voltage differences, injectors, cam and crank, engine speed sensors being main candidates. Its why these get wired directly to the ECU, and then ECU's are recommended to have dedicated 12V and ground feeds to the battery

Yes, basically if there is ANY current flowing, there HAS to be a potential (voltage) difference.

As there will always be some level of current passing through the earth strap, there will be a small voltage difference between points on the engine and points on the chassis - and this can go either way, dpending on the electrical loads at the time.

When you have some electronics that operates at the milli-volt, and milli-amp scale (or even smaller), these "small"variations can throw signal values and supply the ECU with faulty information.

Ypou may find some research into "ground loops" to be helpful understanding the problem.