The problem you’re facing is not really “your” problem so much as a problem with the system: no matter what you, or anyone else, think Chaos and Law mean, I guarantee you that there is no one in the world who shares exactly the same definition of it. Ultimately, Law and Chaos are very poorly defined – Wizards’ definitions of each aren’t even mutually exclusive, so a single action could be both Lawful and Chaotic at the same time. It’s not a great system. There’s a reason they never published a Book of Perfect Dogma or a Book of Unfettered Discord; not even they had a terribly clear picture of Law and Chaos.
So be forewarned the ultimately there may not be a good answer. It’s extremely subjective and wishy-washy.
Anyway, the behavior you describe is often derisively called “Chaotic Stupid,” which not entirely unfair because it is stupid from an in-character perspective. It’s also awful for most groups’ play dynamics, because basically nothing ever gets accomplished and the plot doesn’t go anywhere. Many people ban “Chaotic Stupid” behavior and would consider it a good reason for kicking someone from the group. I am definitely one of these people. This may be a useful thing for your players to learn.
Explain to your group that their behavior basically qualifies as insane. Their responses to stimuli are completely out of keeping with rational behavior; it is neither in their own best interests or in the interests of anyone else. Insanity isn’t really “Chaotic” – it’s damaged. “Insane” literally derives from the Latin word for “unhealthy.” People who are well and truly insane are incapable of safely and comfortably handling the real world; we are talking about very severe forms of mental illness, the sort of thing that requires constant supervision by professionals.
That is not an appropriate character for a game of heroic fantasy.
So your players should learn that they are expected to play healthy, reasonably well-adjusted, and at least somewhat mature characters, at least in serious campaigns. People who can recognize reality, and respond to it in a fashion that makes sense according to their own goals. Those who cannot do so belong in an institution, and if they aren’t in one they’re probably homeless and wretched, barely eking out a survival mostly through dumb luck and perhaps a bit of pity from others.
As for how to play a Chaotic character, particularly a Chaotic Neutral character, it’s important to recognize a few things. First, it is in their internal, not external, reactions to rules that we really see a difference between Lawful and Chaotic characters.
Chaotic heroes are those who have no problem bending or breaking the rules to further their goals (whether those be moral, like achieving some Good, or personal, like getting revenge). They dislike restrictions on their behavior, and generally endeavor to limit them. While a Lawful character embraces rules and restrictions as a form of stability and strength, the Chaotic character only feels stifled by them. That doesn’t mean that the Chaotic character breaks them on principle.
By the same token, a Lawful character may bend or break rules that he considers illegitimate – but he won’t like it and will wish those who had made the rules had been wiser or better, to have created fairer rules that wouldn’t require breaking. The Chaotic character might not even notice that the rule was there.
I can think of two major, sane, and rational Chaotic Neutral archetypes:
A loner typically cares about himself. He doesn’t go out of his way to hurt people – and he does have some scruples, he won’t want to hurt innocent people even if it is to his benefit to do so, and even if he does wind up doing so. He will appreciate altruism on some level even if he does not practice it, and even if he thinks those who do are suckers – possibly on a cynical “if only the world was that nice” kind of level. But he’s not out there for others, usually, he’s out there for himself, and he won’t let his scruples or his appreciation stop him from accomplishing what he wants.
The anarchist, on the other hand, definitely does care about others, and about society in general. He wants to end all rules because he sees rules themselves as bad for people. He’s willing to let the ends justify the means and he’s opposed even to rules that generally make people’s lives better, but he does care about people and about freedom. He fights for himself in the sense that he also wants to be free, but he wants to bring everyone with him. He may be a bit less judgmental of Evil beings than he perhaps should be – he may be willing to see, e.g. Demons, as worthy of at least some respect because of their largely lawless society – but he’ll recognize that they have no respect for others’ freedoms and that death is, perhaps, the ultimate form of imprisonment.
There are doubtless other ways to play Chaotic Neutral. But hopefully these can give your players some ideas on how to play the alignment without falling into Chaotic Stupid – or, perhaps, more correctly just “insane,” not Chaotic-anything.