While it is possible to create a private Chatoom online with something like Chatzy or Mibbit, the chat content will not be any more private than a postcard, it could be read by the website operator or someone with a packet sniffer, this can be solved using instant messenger software like Jitsi, supporting end to end encryption, but it requires both users to have the same program installed.
Privytalks will give you a personal URL to send to your contact, when they click on the link their own encryption keys will automatically be generated before connecting to the chatroom.
One great advantage of PrivyTalks is that you don’t need to send any password, eliminating password leakage risk, and it is so easy to use that the average user will not even notice encryption is taking place, a problem I have found when trying to establish encrypted communications is that most non techie users bark at the thought of having to learn a new skill.
All messages at PrivyTalks are encrypted before leaving the computer, if anyone intercepted them, all they would get is gibberish, in a extreme case where PrivyTalks owners are forced to log chatroom conversations they would not be able to decrypt/read them because all encryption is carried out by the user in his own browser, PrivyTalks only serves as a means of channelling the chat, you can use a packet sniffer yourself and check how everything being sent out is encrypted.
PrivyTalks will warn you with a sound if someone connects to the chatroom so you don’t have to be looking at the screen waiting for your contact to connect, in case you forget to close down the browser, after 5 minutes of idle time the chat will disconnect itself and the contents cleared, a hashed fingerprint is showed below the chat window, this is to make sure that there is no man in the middle attack, which would change the fingerprint if it happened.
Every time you connect to a server on the Internet your IP is logged, there is no way around it other than using a proxy/VPN, PrivyTalks does not mention how long for connection logs are kept in the server, you should not treat PrivyTalks as an anonymous chat if you are using your real IP, treat it as a private chat that nobody else can read but may be traced back to you.
Visit PrivyTalks homepage
UPDATE 2015: PrivyTalks has been down for a few months, link erased.